Two-Thirds of Investors Believe Stocks are Currently Overvalued
by AAII Staff | August 13, 2020
This week’s Sentiment Survey special question asked AAII members for their opinion about the current valuation of stocks. Nearly two-thirds (64%) of respondents say that stocks are overvalued, and valuations are too optimistic. A majority within this group believe the stock market is overvalued given low interest rates and the Federal Reserve’s fiscal and monetary actions. This compares to 19% of respondents who say that the current market valuations contain a mixture of overvalued, undervalued and fully valued stocks. Many believe growth stocks are overvalued while value stocks are undervalued. About 11% of respondents state that the majority of stocks are fully or fairly valued.
Here is a sampling of the responses:
- “Reasonable for the beginning of a new bull market and low interest rates.”
- “The bulk of the stock market is fairly valued, given the low rate of return on cash and bonds. However, it’s easily subject to devaluation should interest rates suddenly rise.”
- “I think stocks are artificially high due to the Fed’s low interest rates and the likelihood that at some point in the near future inflation will return as a result of monetary and fiscal policies.”
- “There is a mixed bag. Some are wildly overvalued, but some are substantially undervalued.”
- “By conventional or traditional measurements, they are fully or overvalued. However, I believe that as the dollar is becoming devalued and inflation is looming, stocks will continue to appreciate.”
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Discussion
EDDIE W from VA posted over 5 years ago:
I am mostly in cash now and hope to invest in the market soon. However, I subscribe to thought that you make your money when you buy, buy low--sell higher, etc. But as I view several I keep evaluating stocks that are to me at least way too high to justify an investment in them. Perhaps I am wrong or too conservative but remain mostly on the sidelines for now. I would love to hear the counterpoint.
JOHN L from NJ posted over 5 years ago:
Hi Eddie. Here is the counterpoint: The stock market can remain overvalued for very long periods. Like the 18 years starting in 1955 when the market as measured by the S&P 500 total return index was about 16% above it's long term trend. Currently I estimate the market at about 15% above the long term trend but I would not go to cash and wait for a drop. It might be a very long time. It is the steady compounding at about 6.5% real (after inflation) returns that makes the stock market attractive for long term investors. To harvest this long term compounding you need to be invested.
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