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Stock markets are expensive, but the bubble is the bonds. So investing has become an enigma

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4 & # 39; reading

The S&P 500 index, the most important on the world stock market, rose 26% from the beginning of the year to November 15, reaching over 3,100 points. These are unexplored levels, as are Nasdaq technology (which surpassed 8,000 points, over 3,000 more than 5,000 that rose to 900 points in the 2000s when the Internet bubble burst) and Dow Jones (+ 20% year-on-year and very close to 28,000 points).

From the minimum period, which dates from March 6, 2009 whenS&P 500 slipped to a double fatal 666-point threshold (this is also the number cited in the Bible, chapter 14 of the apocalypse as the devil's number). the dividends distributed in the meantime (which although thinner than those distributed in Europe because in the United States the logic of buying back coupons prevails, they still represent another 2.5% per annum to be included in the final calculation).

Wall Street risks financial bubble?
The question that arises in cases like these, those in which the expansive phase of the stock market seems to have no end, is true if we are in the presence of a financial bubble. If that were the case, getting into these levels could be extremely dangerous because when the bubbles burst they hurt. And whoever stays with the competition in hand risks risking losing much of their capital.

To gauge whether the stock market is expensive or not, analysts generally use the multiplier they measure. the ratio between the stock market price and the profit. As shown in the introductory chart of the article, the S&P 500 Index at current values ​​(as mentioned above are all-time highs) is 18.1 times more than expected profit for the next 12 months. At the beginning of January 2019 the multiple was lower (15 times). This means that with the rise this year the most important stock market index in the world has surely become more expensive.


Price-to-earnings ratio of stock prices (Source: Office of Mines Studies 24 only)

What is striking, however, is that, in any case, it is not a multiplier indicating the presence of a financial bubble. We are not far from the historical average (between 15 and 16 points for this index). So, given the data, Wall Street is now expensive, but it seems – provided that the earnings growth expectations for next year are confirmed – that there are conditions for a financial bubble to emerge.

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