Is S&P 500 overvalued at its present valuation?

Question

I've just read an article where the author says that the return on investment in S&P 500 during the last decade has been less than zero. And the S&P 500 dividend yield at the present time is only 2.1%. Which is a lot less than the historical average of 4.3%. And this 2.1% isn't even enough to account for the inflation.

http://www.safehaven.com/article-10695.htm

Perhaps people who trade stock frequently and benefit from stock price volatility will continue to buy and sell stocks at any price level. But for long terms investors, investing in S&P 500 stocks doesn't make sense any more. Long-term investors would get a better return from investing in bonds.

Ten years is a long time not to make any money.

Is it likely that long term investors will start getting out of stocks and stay out until they can get a better return on their investment?

Answer 1

S&P 500 seems to be overvalued based on the current PE ratios, but it is NOT so since the revisions are yet to come down after the June and Sep results.  So, keep investing with a DCA approach, and buy at various prices.  I do it weekly and therefore get good averaging happening.......

Markets will rebound soon after we hit $100 in oil which is WAY overvalued!

KKP

Answer 2

According to morningstar, Vanguard's s&p500 index returned 2.81% over the past 10 yrs.  Not great, but certainly better than your less than 0 return.  Also the p/e is 13.4, which is undervalued (in my opinion).

How many long term investors will get out & wait for a better return??  Well that's somewhat unknown.  But waiting for a 20% correction and seeing that as a great time to get out, does not seem real profitable to me.  

In a diversified portfolio, how many people depend on the s&p500 alone??  I hold a s&p500 fund, but it is only 25% of my portfolio.  The other 40% (of my equities) is in small, mid & international funds.  And of course I also hold 35% fixed income.  

I don't expect every fund in my portfolio to always go up.  I've always got leaders & laggards.  In the meantime, I am dollar-cost-averaging & buying cheaper mutual funds.  Twenty years from now when I retire, this will be just another blip

Answer 3

Yes i think S&P is extremely overvalued...i think banks still have massive and i mean massive writedowns ahead...if the banks were honest from the beginning we wouldn't have this mess, now that people know how full of **** they are...nobody believes what they say.

Answer 4

SPY the so-called Spyder  500 is now undervalued and if you are looking for a good entry point this might be it.  I do not trade ETNs or ETFs.   But, I disagree with the long term asset class being bonds because key interest rates are not going to increase rapidly or to a large extent.  IMHO. P.S. most would say the market is in an oversold condition.  Due for a least a short term rebound.  Stocks are better long term performer for normal income people (200K +/-).  Yet a Democratic takeover in January could result in a double of the capital gains tax.  But, I question if it will happen.  We pay the taxes.  To borrow from the sad Leona Hemsley:  "rich people do not pay taxes."   Ask a good tax lawyer!