U.S. Stock Valuations Hit Record Levels As Analysts Warn Of Weak Decade Ahead

Benzinga

U.S. stock valuations have reached historic extremes, with the S&P 500’s price-to-sales and cyclically adjusted P/E ratios surpassing tech-bubble levels. Analysts warn that similar valuation peaks in 1929, 1966, and 2000 led to long periods of weak real returns. Research Affiliates projects negative real returns for large-cap U.S. growth stocks over the next decade.

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00:00It's Benzinga, bringing Wall Street to Main Street.

00:02U.S. stock valuations have reached historic highs,

00:05with the S&P 500's price-to-sales ratio surpassing even the peak of the tech bubble,

00:08according to the Wall Street Journal.

00:10The significantly adjusted price-to-earnings ratio,

00:12which smoothed profits over a decade and adjusted for inflation,

00:16recently topped 40 for only the second time in history.

00:19Analysts were in such levels of historicity received long periods of weaker negative real returns,

00:24as seen after 1929, 1966, and 2000.

00:27The U.S. economy has shifted toward asset-like companies like Microsoft,

00:31who generate far higher profits for each dollar of sales in traditional industries.

00:36However, this argument weakens when measured by the significantly adjusted price-to-earnings ratio.

00:40Research affiliates projects a negative 1.1% real return over the next decade for large U.S. growth stocks,

00:46paired with modest gains for small caps and stronger prospects in European and emerging markets.

00:51For all things money, visit Benzinga.com.

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