This doesn’t mean a decline in the S&P 500 is imminent -- momentum may fade well before the ultimate peak in the stock market, Adams said. But it’s making strategists nervous, for instance those at Societe Generale. SocGen forecasters led by Brigitte Richard-Hidden recommended last week to cut U.S. stock holdings to a minimum amid concern investors have already priced in most of the growth
“No one wants to buy the market when it’s low, they only want to buy it when it’s high,” said Donald Selkin, New York-based chief market strategist at Newbridge Securities Corp., which manages $2 billion. “It’s very easy to buy stocks when they are going up, so that’s why people are piling in.”
A 19 percent jump in U.S. equities last year pushed the S&P 500 to 23.1 times its current earnings, compared with 21.2 times for the MSCI All Country World Index. That’s nothing to freak out about, say staffers at the San Francisco Fed.
Low interest rates are one thing that support higher valuations for U.S. equities and may “warrant caution against bearish forecasts” on future stock returns, according to an economic letter by Thomas Mertens, Patrick Shultz and Michael Tubbs of the San Francisco Fed’s economic department. Low rates have been accompanied by reduced volatility in financial markets, driving up stock valuations.
“The overriding theme from our client questions is, ‘are we at maximum optimism?’” said Ed Clissold, chief U.S. strategist at Venice, Florida-based Ned Davis Research. “Better economic growth, tax cuts, and gradual Fed tightening are well known. The bears’ multi-year warning about valuations are, as well.”
This article was provided by Bloomberg News.