Pro Analysis

A Goldman metric shows stocks extremely overvalued

Traders work in the Goldman Sachs booth at the New York Stock Exchange
Scott Eells | Bloomberg | Getty Images
Traders work in the Goldman Sachs booth at the New York Stock Exchange

Extreme valuations in stocks should cause investors to think twice before chasing the rally at these levels, Goldman Sachs cautions.

"S&P 500 stands at an all-time high and the median stock's P/E is at the 99th percentile relative to the past 40 years," Goldman's market strategist David Kostin wrote in a note to clients Friday.

Last week, the S&P 500 set a new intraday all-time high, surpassing its previous peak reached in May 2015, with stocks up a whopping 15 percent in the past six months.

More traditional valuation measures show extreme levels, too. The S&P 500 trades at a forward P/E of 17.6 times, ranking the current levels in the 89th percentile since 1976, according to analysis by the investment bank.