Stocks Overvalued as S&P 500 Hits Record Levels, Marking the Shortest Bear Market in History

When Did The S&P 500 Hit a New Record?

That was quick. The S&P 500 hit a record intra-day high on Wednesday, August 12 of 3,387.89, besting the previous record closing level of 3,387.15 from February 19. The S&P 500 closed out the day slightly below that level at 3,380.35. On August 18, the S&P 500 closed at a record 3,389, erasing all of its losses since the coronavirus pandemic that sent the broader markets reeling in March.

It took less than five months for stocks to go from its March lows to a new record, making the 2020 bear market the shortest in history and the recovery the fastest on record. To put that into perspective, it took the markets 25 years to recover from the Great Depression and it took four years for stocks to reach record levels after the Great Recession of 2007-2008 and the dotcom crash of 2000.

Has that meteoric rise made stocks even more overvalued and poised for another correction or crash? It’s not as if stocks are rising because of excellent economic data. If anything, there is a massive disconnect between what is happening on Wall Street and Main Street.

The U.S. unemployment rate is at 10.2% and the U.S. economy continues to get ravaged by the coronavirus pandemic. So why the optimism? Aside from the fear-of-missing-out, stocks are rallying on unprecedented fiscal and monetary stimulus.

The Federal Reserve has all but said it will keep its key lending rate at record lows for years to come. That means yield hungry investors will continue to send stock valuations into nosebleed territory. Should the U.S. economy experience a quick economic rebound, it would send the S&P 500 even higher.

Are Stocks Truly Overvalued or Are Stocks Undervalued?

By virtually every measure, stocks are overvalued. Even corporate America agrees. A whopping 84% of Fortune 500 Chief Financial Officers believe that the U.S. stock market is overvalued. Last quarter, that number stood at 55%. How many CFOs think U.S. stocks are undervalued? Just two percent.

Again, unemployment remains in the double digits, meaning, the U.S. economy, which is fuelled by consumer spending, is going to suffer for a long time. Despite these fears, the S&P 500 has soared approximately 60% from its March 23 lows. Over the same time frame, the tech-heavy Nasdaq, meanwhile, has advanced an eyewatering 70%.

On top of that, the percentage of CFOs who expect economic conditions to improve over the next year has dropped to 42% from 58%.

Investors may be pouring into stocks, but corporate America is growing sceptical about what the future holds for the U.S. economy, and by extension, the stock market.

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