KEY POINTS
  • A battery of valuation tests from Goldman Sachs shows the market to be at or near the most-expensive levels in recent history on most measures.
  • Stock values look less extreme relative bond yields and corporate free cash flow.
  • There is a distinct "greed hive" that's buzzing with options speculation, engineered short squeezes and heedless momentum buying of marginal, illiquid stocks.
  • However, when financial conditions remain very loose and the direction of expected earnings is up, there tends not to be a general reckoning due to high valuations
The Charging Bull bronze sculpture located on Broadway at the Financial District of Manhattan.

Stocks are richly valued today, but they've been more expensive at times in the past. High valuations imply unimpressive long-term returns, but they have no relationship at all to how the market does in a given year.

Even a pricey stock market can be made to look reasonable when compared to certain other assets. And there's a big difference between a market that's pricing in a lot of good news and a genuine bubble.