Extract below courtesy of NY Times and reporter David Leonhardt
Relative to corporate earnings over the previous 10 years, the Standard & Poor’s 500-stock index is still less expensive than over much of the last 15 years. But it’s more expensive than at any other time over the last century, save the 1920s.
While the rest of economy has been growing frustratingly slowly for almost five years, stocks have been rising at a boomlike clip. An investment in the Standard & Poor 500-stock index would have doubled from early 2009 through early 2013 and then gained an additional 18 percent over the last year.
Relative to long-term corporate earnings – and more in a minute on why that measure is important – stocks have been more expensive only three times over the past century than they are today, according to data from Robert Shiller, a Nobel laureate in economics. Those other three periods are not exactly reassuring, either: the 1920s, the late 1990s and in the prelude to the 2007 financial crisis.
“..It’s possible that a world of rising inequality and low interest rates is here to stay – and that stocks have reached a permanently high plateau. In that case, whatever our other economic worries, the stock market’s valuation doesn’t need to be high among them…”