"An investor buying into the S&P 500 last week had to fork over $3.25 for every $1 in revenues generated by its 500 constituent firms, according to GuruFocus, the highest price-to-sales ratio on record. While US stocks look less expensive when compared against forecasts of company profits, the benchmark index is still trading at more than 22 times forward earnings, well above the historical average."
"Nobody knows what a stock is really worth because its value is based on future earnings, said James Angel, an expert on financial markets at Georgetown University's McDonough School of Business. Only God knows what the future holds. Because of this uncertainty, stock prices always have been and always will be very volatile. A small change in the market's consensus estimate of future performance can lead to a large and sudden change in value."
US stocks have climbed more than 60 percent since early 2023, pushing major indexes to all-time highs despite trade tensions and debate over artificial intelligence. Valuation metrics show elevated readings: price-to-sales for the S&P 500 reached $3.25 in market value per $1 of revenue, the highest on record, and the index trades above 22 times forward earnings. Most fund managers in a recent Bank of America poll considered stocks overvalued. Comparisons have been drawn to the late-1990s dotcom bubble. High valuations leave markets sensitive to changes in profit expectations, increasing volatility and correction risk.
Read at www.aljazeera.com
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