Does The Stock Market Have A Valuation Problem?

A key driver of P/E expansion is investors’ perception of how far off the next earnings-crippling recession is. As recent recession fears have dissipated, stock market valuations have risen impressively. Ed walks us through the fluctuations in the S&P 500’s forward P/E during this bull market, highlighting how investors’ beliefs about the economy affect the multiples they’ll pay. … Are valuations overextended now? By historical standards, yes. If they expand much more, we might have to raise our subjective odds of a meltup scenario from the current 25%. … Also: Eric explains why we remain bullish on the outlook for consumer spending.