U.S. stocks are grossly overpriced, according to asset management firm Grantham Mayo Van Otterloo (GMO) & Company, which estimates fair value for the S&P 500 Index at 1,100 - or almost 40 percent below current levels.
In a quarterly letter published on Monday, Ben Inker, co-head of global asset allocation at GMO said the expected rate of return on the stock market index is minus 1.3 percent per year, adjusted for inflation, for the next seven years.
"[The] U.S. stock market is trading at levels that do not seem capable of supporting the type of returns that investors have gotten used to receiving from equities," Inker wrote in a report titled "Breaking News! U.S. Equity Market Overvalued!"
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"Combining the current P/E [price-to-earnings ratio] of over 19 for the S&P 500 and a return on sales about 42 percent over the historical average, we would get an estimate that the S&P 500 is approximately 75 percent overvalued," he said.
Boston-based GMO manages more than $110 billion in assets for endowments, pension funds, public funds, and foundations.