Tags: Lahart | stocks | expensive | bubble

WSJ's Lahart: Stocks Too Expensive, But Not in a Bubble

By    |   Tuesday, 17 December 2013 08:18 AM

The stock market's torrid rally this year has led many commentators to conclude that it's in bubble territory.

Wall Street Journal columnist Justin Lahart's take on the issue: "stocks are not in a bubble. But that doesn't mean investors must like them," he writes. "Stocks don't have to be in a bubble in order to be too expensive."

The Standard & Poor's 500 Index has generated a total return of 27.9 percent so far in 2013.

Editor’s Note:
5 Reasons Stocks Will Collapse . . .

When the market really had entered bubble land in 2000, the S&P 500 had a price-earnings (P/E) ratio peak of 28, based on trailing year earnings, compared with 17 now, Lahart experts. The Nasdaq Composite's P/E ratio peaked at 142 back then, compared with 22 now.

As for Lahart's argument that the market is overpriced, while "the S&P's P/E multiple is only slightly higher than its average since the late 1950s, the profits that multiple is based upon may lack staying power if companies end up having to use more of their revenue to cover costs," he notes.

"Given how elevated profit margins have been, that seems likely," Lahart adds.

"Things don't have to be in a bubble to seem out of kilter."

Investors caught up in the market's excitement are ignoring some fundamental truths, says Thomas Kee, president of Stock Traders Daily, a financial advisory service.

In normal times investors are diligent about buying low and selling high, Kee writes in a column for MarketWatch.

"That is absolutely not what we are not seeing currently. With buying low and selling high, often that means selling when everyone else is buying, which seems to be unheard of in today's market."

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

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The stock market's torrid rally this year has led many commentators to conclude that it's in bubble territory.
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2013-18-17
Tuesday, 17 December 2013 08:18 AM
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