MarketWatch's Arends: Stocks May Be Most Overvalued in History

Monday, 11 Aug 2014 07:25 AM

By Dan Weil

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Many analysts say the stock market may be overvalued, but certainly not as much as in 1999-2000.

MarketWatch columnist Brett Arends isn't so sure. Stocks may now be more overvalued than ever before, he writes.

Joachim Klement of Wellershoff & Partners examined the biggest 1,500 stocks by market value for Arends and found that the median stock has a price-to-earnings ratio of 20 times, compared with 16 times in January 2000.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

The median stock currently trades at 2.5 times book value, compared to 2.2 times back then. The median stock also now trades at 1.8 times revenue-per-share, up from 1.4 times.

Dividend yields represent the only metric showing the median stock is less overvalued now than in 2000, Arends says. That yield is now 1.3 percent, up from 0.8 percent in 2000.

"There are some caveats," he writes. "Each individual measure is subject to a lot of variability and noise." In addition, Klement's data may be influenced by survivorship bias. He only studied today's top 1,500 stocks, excluding some that have slipped since 2000.

Retail investors appear to be worried about the market.

The American Association of Individual Investors survey of its members for the week ended August 6 show that 38.2 percent of them have a bearish view of the stock market for the next six months. That's the highest level since last August 22 and is up from 31.1 percent a week ago.

It "suggests some investors believe the market's upward momentum is being interrupted," Charles Rotblut, vice president of the association, said in a statement.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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