BLACKROCK: Here Are 3 Signs That The Stock Market Is Far From Bubble Territory

BlackRock via YouTubeRuss KoesterichU.S. stocks are just a few points from their all-time highs.

In the past when they were at these levels, they eventually tumbled.  And after the fact, people characterised them as asset bubbles that burst.

So, are stocks in a bubble now?

BlackRock’s Russ Koesterich tackles this question in a brief post on the iSharesBlog.

He’s short answer is no.  And he provides three quick reasons:

  • “Most metrics suggest US stock valuations are at or below their long-term average.”
  • “Not only are valuations below average, they are well below peaks reached in 2000 and 2007.”
  • “On a relative basis, even after the recent rally, US stocks still look cheap. The earnings yield on the S&P 500 is at a 30-year high relative to the yield available on an investment grade bond index.”

But having said that, Koesterich doesn’t think stocks are obviously cheap either.  Specifically, he notes that the Shiller PE — the price divided by 10 year average earnings — is a bit high.  As such, returns are likely to be lower.

“This suggests that while US stocks may still outperform bonds, further gains are likely to be more muted and returns over the long term are unlikely to be in double-digit territory,” writes Koesterich.