The S&P 500 has nearly tripled from its March 2009 low, and many experts now say the stock market is vastly overvalued. But MarketWatch columnist Jeff Reeves
He offers several reasons why:
- Economic data is good. The economy is strong, growing 4.6 percent in the second quarter, and the unemployment rate registered 6.1 percent in August, its lowest since September 2008.
- Skepticism is more prevalent than irrational exuberance is in the market.
- "Valuations are fair," Reeves writes. The S&P 500's forward price-earnings ratio stood at 16.85 Friday, according to Birinyi Associates. That's significantly below the 15-year average, according to FactSet.
- Interest rate hikes by the Federal Reserve almost always have been accompanied by rising stock prices since 1960.
- "Rainy days are not doomsdays," Reeves says. "It’s crucial that investors maintain perspective. . . . Long-term trends are never straight lines. We will assuredly see some rainy days in the next year or two."
"Permabears like to call us bulls naive because we shrug off the occasional bad headline, and I’ll readily admit that sometimes I let my confirmation bias get the better of me," he notes. "But the bubble believers should beware of their own stubbornness to see the big picture, and go easy on the 'I told you so's' if we get a spot of rain in the years ahead."
To be sure, the stock market does face a major problem as it seeks to extend the five-year rally, says Wall Street Journal columnist E.S. Browning
. 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 market is primed for more volatility," Scott Clemons, chief investment strategist at Brown Brothers Harriman Private Banking, told Browning. "We are in for a lot more days like Thursday," when the S&P 500 dropped 1.6 percent.
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