According to two measures of value, the answer is yes—and dangerously so. According to the CAPE ratio, the stock market is 185% overvalued. Another measure, the q ratio, has it at 80%. It has been overpriced only twice: in September 1929, right before the Great Depression, and in March 2000, at the tail-end of the dot-com bubble.
My prediction is that it will be more difficult for both U.S. stocks and bonds to go up in the coming years. Either the economy will recover and push interest rates higher and bond prices lower or we will experience a double-dip recession with falling stock prices.
Many retirees who are frustrated by low rates have put money that was earmarked for bonds into stocks, hoping the dividends plus the growth will provide sufficient income.
This presentation is a hypothetical view of financial planning items a client might see in the course of an advisory review. This is for informational purposes only and should not be construed as an investment recommendation or solicitation. Please consult a financial professional to discuss your individual situation prior to making any investment decision. Cambridge does not offer tax or legal advice.
