The Inexact Science of Market Valuation

By Jack Forehand (@practicalquant) —   When it comes to market valuation, investors love certainty. They want to hear definitively that the market is cheap, or the market is expensive, and that they can use that information to predict where it is headed in the short-term. As a result, strategists that make these type of market calls (particularly the ones who do so on the negative side), can generate significant headlines and attention for themselves. None of… Read More

Is the Market Really Overpriced?

A recent Barron’s article shares an interview with Evercore Wealth Management’s chief investment officer John Apruzzese, who believes that the market is reasonably valued. He bases his view on the market’s real earnings yield—trailing 12-month inflation-adjusted earnings divided by price—instead of the more widely used price-earnings ratio. According to Ed Yardeni of Yardeni Associates, Apruzzese’s use of real earnings yield makes sense and “has a good track record.” Barron’s talked to Apruzzese about the implications… Read More

The Market May Not Be As Expensive As You Think

By Jack Forehand (@practicalquant) —  The consensus opinion among followers of the market has been pretty consistent for some time now. The general belief is that the stock market is trading at one of the highest valuations it ever has, and that those lofty valuations bode very poorly for the future. I understand the narrative very well because I have been one of the people saying it. The data also backs it up. Market valuations tell… Read More

GMO Team Member Says Stocks are “Obscenely Overvalued”

In a paper published earlier this month, GMO’s James Montier argues that the stock market is in the grip of a “cynical bubble,” according to an article in Bloomberg. Montier doesn’t share the optimism of his colleague, Jeremy Grantham, who recently expressed his view that the market could be headed for a late bubble “melt-up” the article says. In the paper, Montier writes, “Those buying the asset in question don’t really believe they are buying… Read More

Hulbert: This Timing Model Says Bull Market Has Peaked

According to one dependable valuation model, writes Mark Hulbert in a recent article for MarketWatch, stocks are now more overvalued than they have been since 1969. The model Hulbert cites is based on Value Line’s Median Appreciation Potential (VLMAP), a number published weekly by Value Line, Inc. that represents the median of the projected valuations (in three to five years’ time) of 1,700 stocks monitored by the firm’s analysts. Hulbert says that a number of… Read More

Investors Betting on Record Stock Market Run

In two months, the stock market’s recovery from the financial crisis will reach nine years, according to a recent CNBC article. “To be aggressively optimistic on this stock market now is to bet that it can challenge the greatest bull market of all time—the 13-year run that ended in early 2000.” Elevated valuations are also showing that U.S. stocks are more richly valued than in any period except the late 1990’s, the article says, and… Read More

Bloomberg on Overbought Market

A recent Bloomberg article reports that in the first week of December, U.S. stocks reached their “most overbought level in more than two decades, according to the relative-strength index.” The technical indicator, it says, suggests an increased potential for a market pullback at a level above 70, adding that the same week closed with an RSI level “just below 82.”  

Big Investors are Bearish

Nearly seven out of ten investors say stocks are currently overvalued, according to a recent article in The Wall Street Journal. Citing data from Boston Consulting Group’s annual investor survey of 250 investors (with a collective $500 billion in assets), the article reports, “Big investors are heading into 2018 with the most bearish perspective on stocks since the great financial crisis.” The survey (conducted over two weeks starting in late October) revealed that most of the… Read More

Leon Cooperman Says Market Isn’t Overvalued Yet

In a recent interview with CNBC, Omega Advisors CEO Leon Cooperman characterized the stock market as “reasonably fully valued,” arguing that he is not yet seeing investor euphoria. According to CNBC, Cooperman said he evaluates stocks on a case-by-case basis, and argues that the economy is gaining momentum. He believes the tax bill makes sense and will mostly be a positive change for businesses. On the subject of bitcoin, Cooperman said he has no money… Read More

GMO: Don’t Blame Pricey Market Solely on Tech

A paper published last month by GMO argues that the market’s current elevated valuations should not be blamed solely on the technology sector. Still, it says the market is expensive “no matter how you cut it.” Here are some highlights; The paper provides data showing how the shift to “higher-multiple sectors” only accounts for a portion of today’s pricier market (P/E 10 is also known as the Shiller PE or cyclically adjusted price-earnings-ratio): GMO suggests… Read More