Are US stocks over-valued?

[kork13]

by "banks & investors", you mean the US government right? You do know they're a large driving force of investing in the US markets right? Providing ultra low interest rates so companies buy back shares to pump stock prices and buying financial instruments directly.

I'm not so bold as to predict its downfall or that we're entering another 10 year expansion, but I do think that if you're riding the sidelines and the economy doesn't crash, youre going to be much worse off. It's easiest to just KISS, maintain a reasonable investment allocation and EF, and not worry about what the market is doing day to day.

Yep, totally understand that dynamic, and agree that it's a poor idea to sit on the sidelines out of fear. Not changing what I'm doing at all based on the markets, merely sharing an opinion about what might feasibly occur.

What I'm saying (and what I understood of the article) is that eventually the banks & investors (I mean actual banks, institutional investors, and even private investors) will at some point decide that all of the businesses that have grown, expanded, consolidated assets, etc. are overextended & overvalued with all of the low-cost debt, and will sell off stocks, pull out investments from over-leveraged businesses, etc. That will lead to a market & economic contraction that the Fed will have relatively little control over through further lending rate reductions or buying up debt, because the excess outstanding debt floating around is what caused the contraction in the first place.

As I said, the author explains the thought process better than I can. And maybe I misinterpreted the article completely. That's just my view.

[~bs]

I just came across an interesting & reasonable article about what might lead to the next downturn.

https://venturebeat.com/2020/01/18/the-next-global-recession-why-this-time-it-is-really-different/

The basic idea is that there is simply too much free cash, driven by historically low borrowing costs over the last decade, and at some unknown tipping point, banks & investors will simply say "that's enough" and start restricting (or pulling out) their money from these companies that are using super-cheap debt to make acquisitions, stock buybacks, and heavy R&D.

Net result: Borrowing costs climb, companies are forced to grow slower, stock prices sink/bond prices climb, and the economy takes a moderated tumble toward lower productivity & growth.

Obviously, this is just another prognosticator, and no one really knows what will happen. But this sort of echos my general thoughts (though far more clearly stated), so I figured I would share.

by "banks & investors", you mean the US government right? You do know they're a large driving force of investing in the US markets right? Providing ultra low interest rates so companies buy back shares to pump stock prices and buying financial instruments directly.

I'm not so bold as to predict its downfall or that we're entering another 10 year expansion, but I do think that if you're riding the sidelines and the economy doesn't crash, youre going to be much worse off. It's easiest to just KISS, maintain a reasonable investment allocation and EF, and not worry about what the market is doing day to day.

[Scallywag]

We're now officially at our highest ever net worth - and a huge part of me wants to take my profits and RUN. I moved money into REITS, ETFS and mutual funds and hope we continue growing, even if not at the pace of the bull market of the last year.

[kork13]

I just came across an interesting & reasonable article about what might lead to the next downturn.

https://venturebeat.com/2020/01/18/the-next-global-recession-why-this-time-it-is-really-different/

The basic idea is that there is simply too much free cash, driven by historically low borrowing costs over the last decade, and at some unknown tipping point, banks & investors will simply say "that's enough" and start restricting (or pulling out) their money from these companies that are using super-cheap debt to make acquisitions, stock buybacks, and heavy R&D.

Net result: Borrowing costs climb, companies are forced to grow slower, stock prices sink/bond prices climb, and the economy takes a moderated tumble toward lower productivity & growth.

Obviously, this is just another prognosticator, and no one really knows what will happen. But this sort of echos my general thoughts (though far more clearly stated), so I figured I would share.

[Nutria]

There are so many threads over on bogleheads talking about not investing now and waiting for the dip because the market is at an all time high. The market had 32 all time highs in 2019. If you sat out 2019, you missed the nice 29% gains. Regardless, we do seem to be operating in a normal band. Although that doesn't mean we won't have a 40% correction this year, just that the current market valuation is not out of line with history.

Where did you find this graph?

[Nutria]

If you were ask me this question 10 years ago, I would say it's okay. Retail sucks but life is much better in a hospital.

But this is 10 years later, and today you should have your daughter STAY AWAY at ALL COST. Saturation due to a high amount of schools opening/automation/online dispensing has caused starting salary wages to DECREASE. Many newly graduates are having a really hard time finding a job in well established cities, and some are even getting laid off from places like Missouri (my friend's husband being one of them). Walmart did a massive cut to older pharmacists and pretty much most of retail are scrambling.

Reason for this is the recent massive push for online pharmacy dispensing. Notice that Medicare and other private health insurances are pushing pts to go to their insurance owned online pharmacies. They will typically authorize you a one time fill at a local in network pharmacy, and the rest must be ordered online. This kind of practice is crashing retail and has tanked walgreens stock. Retail are clamping down hard, forcing RPHs to give as many flu shots or MTM counseling as possible to make up for the deficit.

I honestly see our job for the most part disappear in 10-15 years time. There's really no reason to have pharmacists around. I feel like pharmacists act too much as a clutch for MDs. Without this double check, MDs will be more cautious at what they are doing. Then you add AI into the mix plus barcoding, I see out of all health processions RPHs are the first to go (radiologist being the close second). Many countries doesn't have pharmacists and their life expectancy is not that far behind the U.S. Europeans with universal healthcare pays pharmacist at half the price. This is another major headwind since some kind of medicare for all will eventually be pushed and win. The RPH salary add 311 billion dollars/year to the healthcare cost. While everyone yells at insurance company for pocketing a few billion on the backs of sick people, it doesn't hold a candle if you calculated the cost of RPHs to healthcare.

One of my nieces is in Pharmacy grad school, graduating in a year or two. She's nervous, and so am I.

[Like2Plan]

I don't know how we will react during the next downturn. I assume when it happens both DH and I will be retired (I'm already retired and DH is planning to retire in May--fingers crossed). Before, the money in our retirement accounts didn't seem real. The markets go up, they go down--it didn't have any bearing on our lifestyle.

When we had quite a downturn back in December 2018, I decided that I didn't have our retirement accounts lined up very well for such an event. One step I took was to invest in CDs to mature at staggered intervals (for part of our bond allocation)--coordinating them for when we would need money for expenses. If the market goes down, the CDs will still pay as expected. The next step is to continue the ladder. I still don't have everything fine tuned, but I am getting there.

One thing that I feel will be better the next go around is that we are mainly invested in indexes--and only 2 individual stocks (DH and I each have 1). The last major downturn (2008) we had a lot more individual stocks--and not all of them fared well. With Indexes I feel like if we don't touch nothin' and keep our asset allocation correct we will be fine no matter where the market takes us.

[disneysteve]

I'm sure that when it does hit, it's going to be a punch in the gut. It will be hard for many to stay the course and ride it out.

I'm not looking forward to the next big correction because the numbers involved are a lot bigger for us now. On the positive side, though, our stock allocation is lower. Last time around we were 85-90% stock. Now we're only about 65% stock but it's still a lot more money on the table.

[bjl584]

There's an emerging discussion about how the US Stock Market is not the US Economy--more people are tuning into this idea. One, because it's true. The stock market is an indicator like many other things. But it's not the de-facto indicator of a healthy and viable economy. Awareness is good. Consumer debt has me worried. Wage growth has me worried. Job reports have me worried- not unemployment, but the types of jobs being added. A lot of the other indicators are saying it's time for a reset. But I'm going to maintain course all the way through just like I did with the last one.

I'm sure that when it does hit, it's going to be a punch in the gut. It will be hard for many to stay the course and ride it out.

[ua_guy]

There's an emerging discussion about how the US Stock Market is not the US Economy--more people are tuning into this idea. One, because it's true. The stock market is an indicator like many other things. But it's not the de-facto indicator of a healthy and viable economy. Awareness is good. Consumer debt has me worried. Wage growth has me worried. Job reports have me worried- not unemployment, but the types of jobs being added. A lot of the other indicators are saying it's time for a reset. But I'm going to maintain course all the way through just like I did with the last one.

[rennigade]

Ugh...I have a coworker who loves to buy/sell stocks and day trade. He does options, calls (I guess,) etc etc. He's really smart...but the odd thing is...he almost never comes out ahead. He'll make $200 one day and lose $200 the next, rinse/repeat. He keeps talking how the market is "melting up." Oct 2019, he took his retirement money and moved it to much more conservative funds...since he knew the market was going to crash. Not sure how much he missed out on...from oct 29 to now...10%? Some people will never learn. Oh, and he's 30 years old. He has a long time to ride ups and downs.

[~bs]

I am really really alarmed about the market. Just seems to be a lot of speculation esp with TSLA. We have 25 years left to retirement. My daughter has 50K in her Coverdell. Not a lot but she will be going to community college first, then working part-time through her junior & senior year at an instate public university, so we'll see.

My worry is really that it could all come crashing down - the mass euphoria / hysteria could soon lead to pessimism & fear. This market actually reminds me of the 1999 / 2000 hysteria that followed a huge plummet. I am trying to follow the economy, job & GDP reports, and stopped buying new investments. I am also selling stocks to move into ETFs to cover my butt. Waiting & watching because all it might take is one small perceptibly hostile move from China or Iran & we're done in. So I am really wary at this time.

25 years is a long time. If youre worried, maintain a more balance stock/bond/moneymarket allocation. dont lose sleep over it.

a hostile move by china or iran to tank the market likely means we'd be at war with either. Unlikely scenario. Both are full of bluster, but neither is particularly stupid. A simple 2001 or 2008 type market crash is more likely.

[~bs]

who knows what the market will do? it could come crashing down this year or it could go for another 10 year drive.

I already mentioned before that the trump tax cut and environmental & regulatory deregulation offered a shot of adrenaline straight to the heart of the US economy. People underestimate what such a massive tax cut effect has. People hate the guy for political reasons or whatever. I just feel sorry for those that sat on the sidelines for years praying the market will crash.

[Scallywag]

Mid-day, 14 Jan 20 -- Dow is now 29000, Nasdaq almost 9300, S&P 500 nearly 3300.

I just put in an order to sell about 35% of what remains of our taxable investments. It's not much -- this lot is $5800, ~$8000 left that I'm planning to sell by April once they get past the 1-year holding period for LTCG, eventually planning to leave only ~$3000 in the account. I've been slowly selling it off to help fund our next house DP (goal: $150k by ~15 April, should hit that no problem), and with the markets continuing upward, I decided today's new highs are a good time to realize some of our gains. Many of these shares have earned 15%-30% over the last 1-1.5 years, so quite happy to park some of those gains in anticipation of our house purchase.

I maintain my position above -- the markets are probably somewhat over-valued ..... but that simply means it's a decent time to sell & use the money for other goals (in our case, we're aiming to pay off the next house ASAP). I don't know when the next major correction is coming, but I'm fairly certain it'll probably have occurred by the time we've paid off the house (~3-4 years from now) & are ready to refocus on funneling everything toward building up taxable investments for more rental properties & bridging into retirement. We'll still be sending a small amount into investments every month once our budget settles down after our PCS, so we won't be totally out of the market (plus we're changing nothing about our retirement/529/UTMA accounts), but the house will be the dominant priority for a while.

I'm in a "wait and see" mode with the markets.

I am really really alarmed about the market. Just seems to be a lot of speculation esp with TSLA. We have 25 years left to retirement. My daughter has 50K in her Coverdell. Not a lot but she will be going to community college first, then working part-time through her junior & senior year at an instate public university, so we'll see.

My worry is really that it could all come crashing down - the mass euphoria / hysteria could soon lead to pessimism & fear. This market actually reminds me of the 1999 / 2000 hysteria that followed a huge plummet. I am trying to follow the economy, job & GDP reports, and stopped buying new investments. I am also selling stocks to move into ETFs to cover my butt. Waiting & watching because all it might take is one small perceptibly hostile move from China or Iran & we're done in. So I am really wary at this time.

[kork13]

Mid-day, 14 Jan 20 -- Dow is now 29000, Nasdaq almost 9300, S&P 500 nearly 3300.

I just put in an order to sell about 35% of what remains of our taxable investments. It's not much -- this lot is $5800, ~$8000 left that I'm planning to sell by April once they get past the 1-year holding period for LTCG, eventually planning to leave only ~$3000 in the account. I've been slowly selling it off to help fund our next house DP (goal: $150k by ~15 April, should hit that no problem), and with the markets continuing upward, I decided today's new highs are a good time to realize some of our gains. Many of these shares have earned 15%-30% over the last 1-1.5 years, so quite happy to park some of those gains in anticipation of our house purchase.

I maintain my position above -- the markets are probably somewhat over-valued ..... but that simply means it's a decent time to sell & use the money for other goals (in our case, we're aiming to pay off the next house ASAP). I don't know when the next major correction is coming, but I'm fairly certain it'll probably have occurred by the time we've paid off the house (~3-4 years from now) & are ready to refocus on funneling everything toward building up taxable investments for more rental properties & bridging into retirement. We'll still be sending a small amount into investments every month once our budget settles down after our PCS, so we won't be totally out of the market (plus we're changing nothing about our retirement/529/UTMA accounts), but the house will be the dominant priority for a while.

I'm in a "wait and see" mode with the markets.