"Federal Reserve Chairman Jerome Powell made the kind of headlines this week that give stock brokers ulcers. After a speech in Rhode Island on Tuesday, the central banker was asked about frothiness in the markets. As Fortune's Jim Edwards reported, his reply contained six words that investors didn't want to hear: " Equity prices are fairly highly valued." The S&P 500 fell 0.55% on Tuesday and another 0.28% on Wednesday. Still, that's after a string of record highs throughout the summer."
"On virtually all widely observed valuation gauges, Subramanian's S&P 500 Relative Value Cheat Sheet found a wildly inflated index. The four record metrics are noteworthy. First is the index's Price-to-Book Value ratio, which has surged to 5.37x, nearly double its historical average of 2.75x. The Market Cap-to-GDP ratio-a popular Warren Buffett indicator-has also climbed to a record 1.8x, far outpacing its typical average of 0.69x."
Equity valuations on the S&P 500 have reached unusually high levels, prompting market declines after Federal Reserve Chairman Jerome Powell called prices "fairly highly valued." Bank of America Research reported the index as "statistically expensive" on 19 of 20 key metrics, with four valuation measures at all-time highs. Price-to-Book stands at 5.37x versus a 2.75x historical average, and Market Cap-to-GDP is 1.8x versus a 0.69x typical average. Price-to-Operating-Cash-Flow and Enterprise-Value-to-Sales also hit peaks. Market participants debate whether elevated multiples reflect a bubble or structural changes in index composition and business models.
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