Discomfort with Current Stock Valuations


This week’s Sentiment Survey special question asked AAII members about their comfort level with current stock valuations. Just under half of all respondents said stocks are either overvalued (33%) or somewhat/slightly overvalued (14%). Many who thought stocks were expensive described current valuations as being high relative to historical valuations. At the other end of the spectrum, 17% of respondents said they were either comfortable with current valuations or view them as being acceptable. Several of these respondents pointed to profit growth as the reason why. Slightly more than 10% said stocks are undervalued, while 5% said the answer depends on the industry or the stock being analyzed.

A common theme across answers was a lack of good alternatives for investment dollars. Several respondents thought stocks could continue to rise so long as interest rates stay low or profits continue to grow.

Here is a sampling of the responses:

  • “I think valuations are high, but they may stay that way for a considerable time.”
  • “Not very comfortable as the price-earnings ratio seems pretty high, but there is no other game in town besides equities.”
  • “Some stocks are getting too high; need to be selective and not buy the ‘market.’”
  •  “Stocks are undervalued due to the level of profits.”
  • “I’m fairly comfortable at current valuations as I think prices reflect trends in revenues and earnings.”
  • “The Shiller CAPE ratio is extremely high.”

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