Market Talk: Are Stocks Overvalued?

As I'm sure you've been seeing on the news, the NASDAQ, the Dow Jones Industrials, and the S&P 500 are all at or near record highs. The Dow Jones, for example, has said 39 new record closing highs since the November 8th election of last year. These three indices are up approximately 28%, 18%, and 16% respectively from their lows a year ago. Wow. Yet, there are still a lot of uncertainty and risks around the country and indeed around the world. One can't help but ask, as I'm sure you are, are stocks overvalued and in the danger zone? Drilling down, the companies of the S&P 500 are experiencing their third straight quarter of profit growth after a five-quarter period of lower profits.

So corporate America looks to be healthy and growing healthier. Stocks are trading at about 16 and a half times next year's projected earnings, not cheap, but not excessively expensive either. By historical standards, stocks are priced in about their average range based on these earnings projections. Within the market itself, of course, there are the solid upcoming companies and the dinosaurs who are seeing their businesses died so it's important to be selective. Remember, markets are notoriously unpredictable in the short term. There are always wildcard events out there that can cause a quick drop in value. Stocks are longterm investments. Based on today's earnings and historical valuations, most stocks appear to be fairly valued at today's levels.

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