US Stock Market Remains Overvalued, by Jill Mislinski. Four market valuation indicators versus the S&P Composite:
At present, market overvaluation continues to suggest a cautious long-term outlook and guarded expectations. However, at today’s low annualized inflation rate and the extremely poor return on fixed income investments (Treasuries, CDs, etc.) the appeal of equities, despite overvaluation risk, is not surprising.
Western stock markets are currently more highly-valued than the 1920s, or anytime except 2000. Such a high valuation can only occur because of the record low interest rates since 2008 — which the central banks felt were necessary in order to prevent a second Great Depression (only worse).
Better not raise interest rates too much now, or too fast! (Why can’t the market be in charge of interest rates, instead of bureaucrats? A bunch of bureaucrats are effectively dictating stock market levels. In the long term, that cannot be good.)
Sooner or later a recession is going to come along, and the central banks cannot lower interest rates much. What then?