Experts to WSJ: Stocks May Be Overvalued

Tuesday, 10 Apr 2012 08:08 AM

By Dan Weil

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Many experts said in recent weeks that U.S. stocks were undervalued, but now some of them are starting to change their tune.

Just last month, for example, Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said, "The prospects for future returns in equities relative to bonds are as good as they've been in a generation."

But now, even his own colleague apparently disagrees.

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"There's a lot of uncertainty out there, so the S&P shouldn't be trading at a premium," Stuart Kaiser, another Goldman equity strategist at Goldman, tells The Wall Street Journal. "The idea that equities are cheap is not quite right when all factors are considered."

After the Standard & Poor's 500 Index soared 12 percent during the first three months of the year, its best first-quarter performance in 15 years, some traditional measures show the market is pricey.

The price-earnings (PE) ratio for the S&P 500, based on the last 10 years of profits, stands at about 22, far higher than its long-term average of 16.

That compares to a PE ratio of only 12 for Germany and France, Richard Cookson of Citigroup tells The Journal.

To be sure, Friday’s news of slow job growth could help spark more easing by the Federal Reserve, boosting stocks.

“The combination of the European problem and slow job growth may prompt the Fed to do something,” Donald Selkin of National Securities tells Bloomberg. “That’s the only silver lining behind the cloud.”

Editor's Note:  How to Pay Zero Taxes . . . Legally



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