no particular surprise to me on that score.
For about five years now people here have been saying the market is overvalued, it's going to crash any day now, so sell everything!
Yup, a lot of people have been saying its overvalued for a lot longer than that around here and especially the Economy Group. I think its overvalued too except for one thing -- the interest rates and overall return on stocks main competitors -- bonds -- is so low. So people who would normally have bought say 60% stocks and 40% bonds instead say screw the bonds and buy a much higher proportion of stocks. That's what's pushing stocks to sky-high P/E ratios.
Unfortunately I haven't seen any attempt to come up with a version of a P/E ratio that includes a component that takes into account the interest rates on competing bonds, so I don't really know what they "should" be. That said, I think its still overvalued.
I've never been one to say "sell everything". But yeah, that's been what they say in the Economy Group. Along with the Wall Street Casino and the House always has the edge. I don't say those things. As I've written many times in this forum, including recently, I don't know when the market will turn, and I don't want to miss out on more doublings for fear of a TEMPORARY halving.
a lot of companies are making money. That's what's keeping stock prices up.
There are almost always a lot of companies making money. That doesn't ALWAYS keep prices up though.
Stocks are generally considered a leading indicator. Generally they start on their big downturn many months or more before the economy starts to go into recession. And at the other end, they bottom out and turn up many months before the economy start to improve.
We've had various corrections, but no huge crash. Yes, the market goes up and it goes down, but the overall trend is up.
Yes we've been lucky in the last few decades. Nothing here like the Nikkei 82% peak-to-trough crash, and that, 32 years later, still hasn't gotten back to where it was. Nor of course the 1929 crash, 89% peak-to-trough that took more than 25 years to get back to where it was. Or the 14 year recovery time from 1968 to 1982 that included a 48% peak to trough crash in 73-74.
but note that during that long terrible time when the market was recovering from the Crash, was when the P/E ratios were at their lowest. And that huge increase in '07 and '08 was, if I recall correctly, fueled mainly by overvalued tech stocks, a classic bubble.
I'm not following - the '07 and '08 was the housing bubble crash, not a tech stock crash. The S&P 500 peak was 10/9/07 and the bottom was 3/9/09.
The dot com crash was from a peak on 3/24/00 to a bottom of 10/9/02.
Anyway, P/E ratios are usually at the lowest near the bottom. Prices are certainly the lowest at the bottom. Earnings at some points crash even worse than stock prices at times which actually drives P/E ratios to blip up temporarily.
It seems to me that entities like Vanguard and Schwab have been predicting a relatively low return on equities for about a decade now.
Dunno, I haven't been tracking those predictions. They've also probably been predicting good returns before crashes too. They've been wrong in both directions. I'm just saying they too think prices of stocks are very high relative to earnings.
Apparently there are annuities out there that die when the holder dies. Mine don't. Any residual value goes to the beneficiary. Also, a quick look at them, one is 50% invested in stocks, the other about 20%. The first one has increased in value noticeably more than the second, but I have peace of mind with both of them. .
So you got a hybrid of an annuity with an equity component at a time when annuity yields were higher than now, and at a time when the stock market was much lower compared to now. I don't know when in 2012 you got it, but taking the midpoint, on 6/29/2012 the S&P 500 closed at 1362. Yesterday, 2/7/22, it closed at 4484. That's a 3.29 fold increase over 9.6 years. That's a 13.2% annualized return, not including dividends, which would probably add another close to 2% on top of that. Congratulations.
Edited 2/13 to remove some incorrect overgeneralized statements about P/E ratios. This explains some of why P/E ratios may vary quite a lot with market conditions, and why the Case Shiller ratio is more consistent:
https://www.gurufocus.com/shiller-PE.php
= new reply since forum marked as read