Last edited Thu Dec 8, 2022, 07:55 AM - Edit history (3)
number of metrics. The December 2021 Vanguard one goes into a deep dive. The Mark Hulbert links go into some other valuation metrics.
Myself, I think these valuations have gotten way high because of TINA (There Is No Alternative), namely that the competitor to stocks -- bonds and other fixed income investments -- have been having such lousy interest rates that people have gravitated more and more towards stocks over the past 2 decades.
However, at least for now, bond yields are somewhat better now than they have been (they were over 4% for intermediate treasuries recently for example, though slipping back to more like 3.7%). So sky-high CAPE ratios or total market valuation to GDP ratios are not as justified as they were, when intermediate Treasuries were yielding 0.5-2.0%.
That said, interest rates are still at historically quite low levels, and moving downwards. So it's not like people are excitedly reallocating to bonds and CDs because of eye-popping yields or anything like that.
They are not forecasting "a catastrophe", but rather an eventual "regression to the mean" -- a return to more historic levels in these valuation metrics.
Here's a couple more links --
Stock market gains depend on profit margins rising, and they’re already impossibly high, Mark Hulbert, MarketWatch, 4/2/22
https://www.msn.com/en-us/money/markets/stock-market-gains-depend-on-profit-margins-rising-and-they-re-already-impossibly-high/ar-AAVKWct?ocid=msedgdhp&pc=U531&cvid=96857cbf9874431699370cb07c64e1fa
More recently, 11/25/22
https://www.msn.com/en-us/money/savingandinvesting/stocks-will-lag-behind-bonds-and-even-decline-over-the-next-10-years-says-a-valuation-model-based-on-eight-indicators/ar-AA14xuqD?ocid=msedgntp&cvid=5024582484dd4feab45483d036f6cbab
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