Monday, 25 January 2021

US stock market valuation “has never been higher”

The S&P 500 rose 1.9 percent last week, hitting a record high on Thursday.

After the latest rally, Michael Santoli at CNBC wrote that US stocks are “richly valued”.

“Right now, it’s hard to deny that on the whole, stocks are rich relative to past earnings and forecast earnings,” he wrote on Saturday. “The trailing price/earnings ratio of the median U.S. stock, tracked by Ned Davis Research, has never been higher.”

However, Santoli noted that Treasury and investment-grade bond yields are low, so stocks look attractive in comparison.

“When financial conditions remain very loose and the direction of expected earnings is up, there tends not to be a general reckoning due to high valuations,” he said.

Still, investors nervous about the high valuations of US stocks can always look at foreign stocks.

“Foreign equities have the opportunity to outperform U.S. stocks in 2021, three market analysts said Thursday,” wrote Lizzy Gurdus at CNBC.

Gurdus cited Jeremy Schwartz, global head of research at WisdomTree Asset Management, as saying that emerging markets “now have some of the best growth opportunities” on the market.

Bryon Lake, head of Americas client ETF at JP Morgan Asset Management, was cited as describing valuations overseas as “extremely attractive”.

“We survey thousands of advisors every week and they are very bullish on international markets, very bullish on emerging markets,” said ETF Trends and ETF Database CEO Tom Lydon.

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