Is the American stock market overvalued?

Yes, For a very long time now.

Compared to bonds? No.

>>1750573
the stocks being overvalued is an oxymoron based on the efficient market hypothesis.
but what goes up will eventually come down.

Yes, but tell me where else I can put my money to get a 7% gain? 5%? 3%?

>>1750692
>the stocks being overvalued is an oxymoron based on the efficient market hypothesis
explain

>>1750696
well it's something about everything is worth exactly what the market is valuing it to. because everyone has access to the information you could base your decisions they already priced in every factor every risk and every potential for gain for you.

this is of course not necessarily true for low volume obscure stocks there you could actually find gems the market overlooked if you have additional knowledge.

>>1750709
>this is of course not necessarily true for low volume obscure stocks there you could actually find gems the market overlooked if you have additional knowledge.

sounds like dotcom bubble 2.0

>>1750715
the point is the more people looks at a given investment the more accurate the price of it will be.

>>1750709
This isn't really true unless you mean blue chip stocks. The .dom bust happened because stocks were overvalued.

>>1750728
well it's a definition thing really.
if you accept it was a bubble then by definition you don't accept the emh and vice versa.

>>1750696
Stock valuation involves a lot of speculation for certain companies. When a company is first starting out and goes public, the valuation it gets also includes future market speculation

>>1750751
altho some argue that bubbles are always positively identified in hindsight. and that pretty much leaves the emh intact while allowing for bubbles in the history.

The problem with P/E as a gauge of market value is that you're using two data points unrelated in time. Price is always a forward-looking metric, driven by expectation of future profit making potential (see DCF model). By contrast, earnings are always historical, being taken from prior period reporting.

When conditions make the future look better than the present, P/Es will ALWAYS rise. Why? Because the future-looking element (price) goes up while the backwards-looking element (earnings) stays unchanged.

So when you look at charts like this, always ask yourself: is there something that the markets think will make the future better for business than the present? And then answer, here, is yes. People expect the Republicans to give tax breaks to corporations, to decrease regulations, to reduce compliance, and to impose protectionist anti-trade protections. All of these things will, in the short term, improve FUTURE profits of U.S. corporations.

Protip: Looking at a chart of market data and freaking out just makes you look stupid. Always try to understand the REASONS behind the data before running around like a headless chicken.

>>1750761
so the reason stocks go for low pe ratios is because market outlooks are grim for the near future right? and even if it makes sense in retrospect to buy then it sure as hell doesn't make sense right then.

>>1750761
If what you are saying is correct, would you agree that it still a bad time to get into the market? After all, if the expected profits are already priced in, prices can only stagnate for the next couple of years, until earnings catch up, no?

>>1750769
>so the reason stocks go for low pe ratios is because market outlooks are grim for the near future right?
Not necessarily. Could also be a case where the past (earnings) was really good and the future (price) looks to be "normal."

Basically, P/E movement simply shows a change in optimism/pessimism compared to the prior period. It's a useful metric, insofar as it can reveal massive (perhaps unrealistic) optimism or substantial (perhaps unwarranted) pessimism. But when there are good reasons for the optimism/pessimism, then it simply shows the market being efficient.

Remember: the future is always priced into a stock price. Usually accurately, sometimes not, but ALWAYS included.

>>1750777
>if the expected profits are already priced in
Big "if". We don't really know yet how favorable the future conditions will be. Current prices simply reflect the collective prediction of the market, but that prediction could easily be off in EITHER direction.

>>1750779
>but that prediction could easily be off in EITHER direction.
but still, when the outlook is very optimistic statistically the difference would be negative and when the market is very pessimistic the difference if there is any would be positive most likely no?

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>>1750573
Yes

BUT I wouldn't say that the entire stock market is overvalued. Financials and healthcare seem to be quite stable, the IT sector (almost a quarter of the US economy) on the other hand..

I refuse to believe that one of the most valued companies in the entire world, upwards of TIMES more valued than most auto manufacturers, banks, retailers and so on, is valued at that insane capitalization because it created and OS and an Office suite (both being currently developed to similar qualities for absolutely free by a handful of random individuals). I believe that the entire US IT sector is hanging on a huge bubble that will implode quite soon, and that the bubble is inflated by the illogical copyright laws that prop up such easily-codeable software to be not only overpriced to such extents, but also the price collection of the insane sum to be enforced by the long arm of the state's interventionism.

And don't even get me started on the shitty dying-out ads, the thing responsible for Google and Facebook's 70% of valuation. Services that are actually valued and sought by the market (i.e active subscriptions, cloud storages, etc) do not revert to using ads, the cheap companies that are incapable of selling their service for a subscription fee (as no one would pay it) do.

The dotcom bubble taught us something important by showing the true side of this sector, learn from history and don't be fucking retarded. Companies forced to revert to joining government programs (like PRISM) to receive backroom tax reductions so they stay competitive and don't crash the economy aren't worth a tenth of what they currently are.

>>1750801
>it created and OS and an Office suite (both being currently developed to similar qualities for absolutely free by a handful of random individuals)
it's hardly the same quality tho. i use ms office for work and open office privately. the difference between the two is enormous even tho open office can get shit done in the end too.

>>1750788
>very optimistic
>very pessimistic
I don't disagree with your conclusion, but how do you objectively determine when the optimism or pessimism displayed by the market is unwarranted? You can guess, of course, but you're just gambling that your hunch is smarter than the collective hunch of all current market participants (including those with more information, capital, resources and education than you).

>>1750801
You are an idiot.

>>1750801
>The dotcom bubble taught us something important by showing the true side of this sector, learn from history and don't be fucking retarded
Naw. The great irony of the dotcom bubble is that projections about the size of the internet economy were actually very accurate. People simply expected it all to happen much faster than reality would permit. The crash happened not because people were wrong about internet commerce, but rather because they were wrong about what was required to capitalize on the internet economy.

The lesson of the dotcom bubble is that you make money on the internet by having good infrastructure and good know-how (Amazon, Walmart, Target, Netflix) and not simply by having a good domain name (https://en.wikipedia.org/wiki/Pets.com).

>>1750807
i meant compared to historic averages of course. you can only look at what already happened in this case. and given the cyclical nature off the market. sooner or later pe ratios have to fall.

>>1750834
>sooner or later pe ratios have to fall.
Maybe. I don't disagree that bear markets happen, but knowing that fact doesn't allow you predict when they will occur. People have been predicting a market crash EVERY year since 2009. If you stayed out of the market during that timeframe because the Shiller P/E was above its historic mean (true) you missed a 250% gain in seven years. Big, big mistake.

Also, P/Es will rise over time naturally. As long as capitalism continues to dominate the world economy, conditions for profitability will steady improve over time. If you were to compare current P/Es to an accurate upward-sloping trend line, you'd realize we're not nearly so far above historic norms as you might suppose from OP's chart.

Yes and it will correct itself within the next few years.

So save your money. And buy during the next collapse.