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Stocks have not been this expensive in 19 years — what to watch now

Stocks at highest valuation since 2001—what to watch now

The S&P 500 is less than 6% from recovering record highs.

But after that steep rebound, stocks also carry a hefty price tag. The index now trades at more than 22 times forward earnings, its highest valuation since mid-2001. This comes even after an earnings season of warnings and pulled guidance.

"There's no question that earnings drive stocks, and I think that is going to continue to be the case," Piper Sandler chief market technician Craig Johnson told CNBC's "Trading Nation" on Friday. "I think what we're seeing right now in this market, though, is due to the unprecedented stimulus between the Fed and also between the fiscal policy that's been put into place, a bridge has been sort of built over 2020."

Johnson said the Fed's stimulus has put a floor beneath the S&P 500 that it should continue to build on. With the index being back above its 200-day moving average and headed to former highs, that's proof the market is "discounting this economic recovery" and "looking forward," according to Johnson.

"I see a market that's going to continue to push ahead. I think by year-end, we're going to get to 3,600 on the S&P 500. That is an objective that we've had since December of last year and we reiterated at the March lows," said Johnson.

Johnson's target implies 13% further upside on the S&P 500. 

Chad Morganlander, portfolio manager at Washington Crossing Advisors, adds that 2020 and 2021 earnings should improve as the economic recovery continues. As that happens, Morganlander is focusing on high-quality stocks.

"Overall, we would advise investors not to be too bearish, at this point. Look at high-quality individual companies that don't have a lot of debt on their balance sheet, and to be somewhat more critical in regard to that quality perspective," Morganlander said during the same segment. "With that said, yes you can always get that garden variety pullback of 10% within the market, but investors should not get shaken out by that."