John Hussman expresses deep concern about stocks at current valuation levels in his latest (excellent) piece. Contrary to what’s reported in mainstream financial media, stocks are actually quite expensive by all historical standards he says.
Present market risks involve a confluence of factors. First, valuations remain unusually rich. Though prospective returns are better than at the 2000 and 2007 peaks, valuations remain more elevated than at any point prior to the late-1990’s bubble, save for the period before the 1929 plunge. Notably, valuations only seem “reasonable” on the basis of “forward operating earnings” if one ignores the fact that profit margins are 50-70% above historical norms, and are dependent on unsustainably large fiscal deficits and depressed household saving in order for that to continue (seeToo Little to Lock In).
Further reading: John Hussman – Dancing at the Edge of a Cliff
He has a great chart in there that will scare you out of any US index funds you may be holding.