The stock market is more overvalued than at most of its other tops since 1900, as measured by six prominent valuation measures, says Mark Hulbert, publisher of Hulbert Financial Digest.
"That doesn't mean the bull market is coming to an end, of course, since some past bull markets were even more overvalued when they topped out," he writes in
The Wall Street Journal.
"Nevertheless, the evidence suggests that risks are high. You may want to consider selling some of your stock holdings and building up cash."
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Hulbert looked at 35 bull market tops since 1900, as defined by Ned Davis Research.
When it comes to the price-earnings (P/E) ratio, based on the previous year's earnings, the Standard & Poor's ratio is now 18.6, exceeding 24 of the 35 prior tops.
Moreover, Robert Shiller's cyclically adjusted P/E ratio, which uses 10 years of earnings, sits at 25.6, beating 29 of the 35 previous tops.
Meanwhile, the S&P 500's dividend yield stands at 2 percent, lower than 30 of the 35 prior tops. A lower yield can mean higher stock prices.
The other three indicators are price-sales ratio; price-book ratio; and the Q ratio, a ratio of price-to-replacement cost of assets. These indicators are all higher than in most of the previous market tops.
"While each of these valuation ratios has its detractors, it is noteworthy that all six of them are currently telling a similar story," Hulbert notes.
Many experts see stocks as vulnerable if companies don't report strong fourth-quarter earnings in coming days.
"Given that equities are fully valued and arguably overvalued, we need earnings and revenue to come through to support the gains we've already made," Jack Ablin, chief investment officer at BMO Private Bank, tells
Reuters.
"There's a reasonable chance we could see a 10 percent correction in the event we get some high-profile disappointments."
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