Tags: Browning | stocks | priced | perfection

WSJ's Browning: Stocks Close to 'Priced for Perfection'

By    |   Monday, 29 September 2014 10:43 AM

The stock market faces a major problem as it seeks to extend the five-year rally that has seen the S&P 500 index nearly triple, says Wall Street Journal columnist E.S. Browning.

The problem: it's nearly priced for perfection.

"Priced for perfection, unfortunately, doesn’t mean attractive," he writes. "It means that stock prices are so high that gains depend on a very favorable investing environment, with strong corporate profits, low interest rates, low inflation and continued global growth."

The S&P 500's trailing price-earnings ratio stood at 19.4 Friday, far exceeding its long-term average of 15.5, according to Birinyi Associates.

The CBOE Volatility Index (VIX), which measures expected volatility in the S&P 500, also stands well below historical averages, after hitting a seven-year low in June. But that soon may change, some market participants say.

"The market is primed for more volatility," Scott Clemons, chief investment strategist at Brown Brothers Harriman Private Banking, tells Browning. "We are in for a lot more days like Thursday," when the S&P 500 dropped 1.6 percent.

Some experts maintain both the stock and real estate markets are in bubbles. But Harvard economist Larry Summers disagrees.

While some financial commentators have expressed concern that the stock and housing markets have entered bubbles, Harvard economist Larry Summers disagrees.

"There's no question that assets are more fully priced than they were 18 months ago," the former Treasury secretary tells CNBC.

"But it seems to me that if you look for the kind of indicators that were prevalent in 1999 and 2000 in the stock market, or the kind of indicators that were prevalent in the housing market in 2006, I don't see them there."

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The stock market faces a major problem as it seeks to extend the five-year rally that has seen the S&P 500 index nearly triple, says Wall Street Journal columnist E.S. Browning.
Browning, stocks, priced, perfection
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2014-43-29
Monday, 29 September 2014 10:43 AM
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