Are stocks overvalued?

This is one post in a series based on our “Tough Questions for Your Advisor.” Each post covers one of the important topics we discuss with our wealth management clients.  Today’s topic is:

Are stocks overvalued?

There are many methods of measuring how expensive the stock market is, but the most prominent is something called the P/E ratio, or price/earnings ratio.  Going back in history, the S&P 500 has ranged anywhere from a P/E of 4.78 to 44.19.

What we show in this video is that when interest rates are low, stocks tend to trade at higher valuations.  This makes intuitive sense because if interest rates on bonds and safe investments are low, investors are more likely to take more risk to achieve their return objectives and put more money into stocks.

So in our current interest rate environment, today’s stock values seem to make sense and could potentially move even higher.

Want to know more? Check out the rest of the posts in this Series:

 

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Barry Glassman, CFP®
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