Veteran financial journalist Mark Hulbert sounded the valuation alarm bells Aug. 16 with an opinion piece on the S&P 500 that should scare most equity investors into submission. According to Hulbert, the current stock market is more overvalued than at almost any other time since 1900.
It doesn’t matter whether you are fond of the cyclically adjusted price-to-earnings ratio, the Q-ratio (James Tobin’s riff on valuation) or one of the more traditional metrics such as price-to-sales, stocks today — when compared to all of the bull market peaks since 1900 — are seriously overbought.
In Hulbert’s estimation, all six of the metrics he uses to make his argument are at historical highs. For example, the current price-to-earnings ratio of U.S. stocks is 25.2, higher than 89% of all the previous bull market peaks.
There’s no escaping the fact investors are quickly finding themselves trapped in a no-win situation, where interest rates demand we push heavily into equities, while common sense, Hulbert argues, suggests we ought to do the opposite despite the limited alternatives.
For those who see the light, you might want to start your pruning with these three S&P 500 stocks.