Saturday, 25 November 2017

S&P 500 hits record high but valuations “stretched”

Markets were mixed on Friday.

The S&P 500 rose 0.2 percent to another record high but the STOXX Europe 600 slipped 0.1 percent.

“The reason stocks are rising is because of earnings. The beat rates so far have been so high suggesting that corporate profits across sectors have been growing so quickly, even analysts can’t keep up,” said Crista Huff, chief analyst at Cabot Undervalued Stocks Advisor.

However, strategists at Société Générale “expect stretched valuations and rising bond yields to limit equity index performances in 2018 and the prospect of a U.S. economic slowdown in 2020 to further cramp returns in 2019”.

While US stocks have continued to make new highs despite overvaluation concerns, new research reported by Bloomberg suggests that stock prices often miss true value by a “significant margin” but that over the longer term, “reversion dominates”.

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