While some experts have turned bearish on stocks, legendary investor Bill Miller, manager of the Legg Mason Opportunity Trust, isn't one of them.
"I think they're fairly valued," he told CNBC
. "They're cheap compared to bonds. It makes no sense for the stock market as a whole to yield more than the 10-year Treasury, unless we're going into a recession, because dividends are going to grow."
The S&P 500 index had a trailing price-earnings ratio of 20.03 Friday, up from 17.08 a year ago, according to Birinyi Associates. The index yielded 1.98 percent, compared with 1.95 percent for the 10-year Treasury.
Miller said the strong January jobs report issued last Friday may point to an end for the 33-year-old bond market rally.
"If that's the case, then the outlook for stocks is much better, just as we saw in 2013 when the bond market sold off on that taper tantrum. It sent stocks soaring. That wouldn't necessarily be a good thing if stocks go [rise] 20 or 30 percent."
The taper tantrum describes the bond market's reaction to the Federal Reserve's indication that it would taper its bond purchases.
Meanwhile, Nobel laureate economist Robert Shiller of Yale University, says that ironically, the recent rallies in stocks and bonds don't reflect investor optimism.
"People are fundamentally worried about what kind of income they will have — or that their children will have — in 30 or 40 years," he told the Financial Times
That represents quite a contrast from what he calls the "the millennium boom" in the financial markets during the late 1990s and the "ownership society boom" during the 2000-07 period.
"They were both driven by some kind of enthusiasm and excitement about investing," Shiller said. "This time it seems to be more about fear. It's technology again, but it's fear about technology, rather than elation about the opportunities."
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