“The market is as overvalued now as it was undervalued a year ago,” said David A. Rosenberg, chief economist and strategist for Gluskin Sheff, an investment firm. “There’s a very high degree of complacency.”
The incongruity of it all can be seen clearly in an analysis of price-to-earnings ratios, a gauge of how expensive stocks are relative to their performance.
Ratios in the Standard & Poor’s 500-stock index are hovering about 13 percent above the average since 2005; a year ago, they were about 40 percent below the average. That suggests that investors are betting on robust earnings through the end of the year, a view that many economists do not embrace.
“The stock market has priced in a bit more than what we’ve got so far,” said Jeffrey A. Hirsch, editor of The Stock Trader’s Almanac. “We’re due for a pause.”
RELATED LINKS Current DateTime: 12:36:27 29 Mar 2010 LinksList Documentid: 36079721 The Jobs Puzzle Bernanke Can't SolveDow Can Hit 12,000 by Year-End: ExpertsWhich Sector Will Lead from Here? Recent rallies have been narrow, with a modest number of stocks reaching 52-week highs even when the broader market surged. There is a sense in some corners that stock prices will decline: investors are betting more on stocks’ falling now than they have since July.
Mr. Hirsch, citing historical patterns, predicts a 20 to 30 percent dip in the markets before they can climb again. The Dow Jones industrial average is more than 60 percent above its lows a year ago, flirting with 11,000 for the first time since the onset of the financial crisis, though it remains more than 3,000 off its prerecession peak.