T Nation

Is the Stock Market Overvalued?


#1

"The CAPE has a far better forecasting record than the traditional P/E.

The CAPE currently stands at 23.6, according to Shiller. That is higher than 90% of comparable readings since the 1870s.

The good news here, if there is any, is that valuations exert only a weak gravitational pull over the stock marketâ??s near-term direction. So there is no reason that the bull market couldnâ??t continue for a lot longer.

But the stock marketâ??s long-term prospects certainly appear bleak: According to an analysis Asness recently conducted, the current CAPE level of 23.6 translates into a forecast that the S&P will produce a 10-year real return â?? between now and mid 2023, in other words â?? of just 0.9%.

http://www.marketwatch.com/story/pes-high-as-earnings-season-begins-2013-07-10?link=MW_story_investinginsight


#2

[quote]Headhunter wrote:
"The CAPE has a far better forecasting record than the traditional P/E.

The CAPE currently stands at 23.6, according to Shiller. That is higher than 90% of comparable readings since the 1870s.

The good news here, if there is any, is that valuations exert only a weak gravitational pull over the stock marketâ??s near-term direction. So there is no reason that the bull market couldnâ??t continue for a lot longer.

But the stock marketâ??s long-term prospects certainly appear bleak: According to an analysis Asness recently conducted, the current CAPE level of 23.6 translates into a forecast that the S&P will produce a 10-year real return â?? between now and mid 2023, in other words â?? of just 0.9%.

http://www.marketwatch.com/story/pes-high-as-earnings-season-begins-2013-07-10?link=MW_story_investinginsight[/quote]

Where did the CAPE stand one and two years ago? I bet it indicated a bleak outlook then too. I think the ten year outlook is probably on the low side but I’m not sure the two to four year outlook is. I think a lot of money could be made in that time on the long side. We’ll see.


#3

Yes, it is overvalued. When the Fed engaged in three bouts of quantitative easing (QE1, QE2, and QE3), the market was never allowed to hit rock bottom - it was temporarily and unstably “propped up” by the Fed’s ridiculous monetary policy, especially considering that nobody was fully aware of the long-term effects of such a policy. In essence, it was an economic experiment, and we continue to be in the midst of this experiment, because we still have not discovered what the long-term results will entail. Any economist will tell you that the stock market is in uncharted territory at this point - the fundamentals have not applied to the stock market since the beginning of the year.


#4

[quote]The Greek wrote:
Yes, it is overvalued. When the Fed engaged in three bouts of quantitative easing (QE1, QE2, and QE3), the market was never allowed to hit rock bottom - it was temporarily and unstably “propped up” by the Fed’s ridiculous monetary policy, especially considering that nobody was fully aware of the long-term effects of such a policy. In essence, it was an economic experiment, and we continue to be in the midst of this experiment, because we still have not discovered what the long-term results will entail. Any economist will tell you that the stock market is in uncharted territory at this point - the fundamentals have not applied to the stock market since the beginning of the year. [/quote]

Yeah, but given the fed minutes and Bernankes talk yesterday the pump is primed for a nice bull run through the next few months or maybe into the end of this fiscal year.

How it all unwinds? Whoever knows that will be making the forbes 100.