Stocks today are overvalued by any reasonable valuation metric.
If you look at the CAPE (cyclical adjusted price to earnings) the market is registers a reading of 27(anything over 15 is overvalued). We’re now as overvalued as we were in 2007. The only times in history that the market has been more overvalued was during the 1929 bubble and the Tech bubble.
Please note that both occasions were “bubbles” that were followed by massive collapses in stock prices.
Source: http://www.multpl.com/shiller-pe/ [5]
Then there is total stock market cap to GDP, a metric that Warren Buffett’s calls tge “single best measure” of stock market value.
Today this metric stands at roughly 130%. It’s the highest reading since the DOTCOM bubble (which was 153%). Put another way, stocks are even more overvalued than they were in 2007 and have only been more overvalued during the Tech Bubble: the single biggest stock market bubble in 100 years.
Source: Advisorperspectives.com
1) Investor sentiment is back to super bullish autumn 2007 levels.
2) Insider selling to buying ratios are back to autumn 2007 levels (insiders are selling the farm).
3) Money market fund assets are at 2007 levels (indicating that investors have gone “all in” with stocks).
4) Mutual fund cash levels are at a historic low (again investors are “all in” with stocks).
5) Margin debt (money borrowed to buy stocks) is near record highs.
In plain terms, the market is overvalued, overbought, overextended, and over leveraged. This is a recipe for a correction if not a collapse.
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Phoenix Capital Research