ALL NEWS

Even Corporate America thinks the stock market is overvalued

Aug 27, 2020, 6:40 AM
August 24th 2020 - The NASDAQ Composite stock market index and The S&P 500 stock market index b...
August 24th 2020 - The NASDAQ Composite stock market index and The S&P 500 stock market index both closed at all-time highs on Monday, August 24, 2020 - the second consecutive trading day that each market index reached a record closing. - File Photo by: zz/STRF/STAR MAX/IPx 2020 6/14/20 Atmosphere in and around Wall Street and The New York Stock Exchange in the Financial District of Lower Manhattan, New York City on June 14, 2020 during the coronavirus pandemic amid the aftermath of protests, demonstrations, riots, vandalism and destruction of property in response to the death of George Floyd who died while being arrested by police officers in Minneapolis, Minnesota on May 25th. (NYC)
(NYC)

    (CNN) — Even Corporate America thinks Wall Street’s meteoric recovery may be getting out of hand.

A stunning 84% of Fortune 500 CFOs say the US stock market is overvalued, according to a survey released Thursday by Deloitte. That’s up from the 55% who felt that way a quarter ago. Just 2% of finance chiefs say US stocks are undervalued.

The findings add to the mounting evidence suggesting the slingshot rise in stocks created in part by the Federal Reserve may be overdone.

Even as elevated levels of unemployment show that the real economy is still suffering from the pandemic, the S&P 500 has skyrocketed 55% since its March 23 lows. Not only has the index recovered all its losses, but it’s even set new highs. The Nasdaq has climbed a staggering 70% over that span.

Yet the leaders of Corporate America are not nearly as euphoric as Wall Street’s blockbuster numbers would suggest.

CFOs’ optimism about their own companies rebounded sharply off record lows, 60% of those surveyed by Deloitte say the North American economy is in bad or very bad shape. Just 7% say economic conditions are good.

For the first time in the decade Deloitte has been doing the survey, CFOs were more bullish on the Chinese economy than on North America’s.

Moreover, the percentage of CFOs who expect better economic conditions in the next year in North America dropped from 58% to 42%.

Taken together, Deloitte said the findings suggest “growing skepticism about the pace going forward.”

Market valuations near 20-year highs

Yet there appears to be little of that skepticism on Wall Street as investors pile into stocks in response to unprecedented easy money from the Fed.

The surge in stock prices has driven traditional valuation metrics to levels unseen in decades.

The S&P 500 closed Tuesday at 22.6 times projected earnings, according to FactSet. That price-to-earnings ratio is well above the five and 10-year averages of 17.1 and 15.4, respectively.

In fact, it’s just a touch below the peak P/E ratio, which hit 22.9 on June 8. That was the highest P/E ratio since September 2000, just before the implosion of the dotcom bubble.

Citigroup’s Panic/Euphoria Model is the most euphoric it has been since the dotcom bubble, recently hitting levels that in the past signaled stock market declines to come.

And the CNN Business Fear & Greed Index is solidly in “greed” territory, though it remains out of “extreme greed,” at least for now.

FOMO is real

Taking advantage of this market euphoria, a steady stream of companies are racing to cash in by selling their stock to the public.

There have been 41 public offerings worth a total of $16.4 billion this month alone — the most for the month of August on record, according to research firm Dealogic. That includes IPOs as well as offerings through special purpose acquisition companies, or SPACs. In recent weeks, unicorns including Airbnb and Palantir have revealed their intent to go public, too.

“Sentiment is increasingly positive, and the fear of missing out is becoming a powerful driver for investors to get back in the market,” Brad McMillan, chief investment officer at Commonwealth Financial Network, wrote in a note on Wednesday.

McMillan urged investors to stay rational. “We should not get caught up in the excitement,he said. “All-time highs are great, and they often lead to further highs. But they can also signal increased risk.”

Easy money underpins optimism

Of course, there are some valid reasons for market valuations to have climbed so sharply.

Investors typically sniff out economic recoveries long before Main Street feels them. And even though GDP collapsed during the second quarter, a rebound is clearly underway. The Atlanta Fed’s GDPNow model is calling for GDP to climb by a 25.6% annualized rate in the third quarter.

Corporate America’s bottom line is shrinking, but maybe not by as much as feared. Per-share earnings were nearly $8 better than expected during the first half of the year, according to Citi. Some forecasts for 2021 are also rising.

And there are hopes of a medical breakthrough that makes it easier to treat or even vaccinate against coronavirus.

The real key to the market recovery is the Fed.

By slashing interest rates to zero and promising to keep them there for the foreseeable future, the US central bank is essentially forcing investors to bet on stocks. The returns on ho-hum government bonds just don’t look attractive.

“Stocks are just not that high compared to the tremendously overvalued bond market,” said Michael Kelly, who leads the global multi-asset business at PineBridge Investments.

Kelly said he’s not concerned that stocks are in a bubble because the Fed is likely to keep interest rates extremely low for a very long time. If that happens — and corporate earnings rebound — then stocks would look like a good deal.

“If cash flows can get back to where they were,” Kelly said, “then everything is rational.”

‘Shades of 1999’ but…

Some market skeptics are throwing in the towel.

Citi had been warning the S&P 500 could drop to 2,900 (from nearly 3,500 today) by year-end. But in a reversal, Citi on Monday raised its year-end target to 3,300 in part because of “unbridled Fed easing.”

“Despite euphoric readings on our sentiment metric and less attractive valuation, equities continue to advance and may appreciate more if investors want to chase the tape,” Tobias Levkovich, Citi’s chief US equity strategist wrote in a note to clients on Monday. “Indeed, we see shades of 1999 but the Fed started tightening then and there’s no hint of a repeat now. ”

If anything, the Fed is making it very clear that it plans to support the economy, and by extension the market, for as long as it takes.

“We still think the market may be ahead of itself but the Fed will do ‘whatever it takes’ to prevent US stocks declining by teen-like percentages,” Levkovich wrote.

In other words, markets might be overvalued, but that doesn’t really matter if the Fed keeps its foot on the pedal.

The-CNN-Wire
™ & © 2020 Cable News Network, Inc., a WarnerMedia Company. All rights reserved.

We want to hear from you.

Have a story idea or tip? Send it to the KSL NewsRadio team here.

Today’s Top Stories

All News

Utah's deregulating the workforce is something the rest of the nation could learn from. It's a topi...
Mark Jones

What America could learn from Utah’s deregulating workforce

SALT LAKE CITY — A tight labor market continues to hurt the rest of the nation. Utah, on the other hand, is deregulating its workforce by making some key changes to help build its economy and fill job openings. It’s something the rest of America could learn from.  This is accomplished by loosening the guidelines […]
1 day ago
A majority of Americans say he hasn't accomplished much and many Democrats aren't thrilled at the p...
Kevin Liptak, CNN

Takeaways from Biden’s State of the Union address

A recap of President Biden's second State of the Union address on Tuesday, Feb. 7, 2023.
1 day ago
A man was partially amputated while harvesting crops on monastery land Tuesday. At this time, it is...
Devin Oldroyd

Man’s arm partially amputated by farm equipment Tuesday afternoon

A man was partially amputated while harvesting crops on monastery land Tuesday. At this time, it is not clear if paramedics could save the limb.
1 day ago
A high altitude balloon floats over Billings, Mont., on Wednesday, Feb. 1, 2023. The huge, high-alt...
Mark Jones

Rep. Stewart: Lessons to be learned from Chinese spy balloon, doubts it ever flew over Utah

Rep. Chris Stewart tells KSL NewsRadio's Dave and Dujanovic that he has no reason to believe that the Chinese spy balloon ever flew over Utah.
1 day ago
two deer are pictured gazing up along the grass, research will take a deep dive into deer this seas...
Hugo Rikard-Bell

DWR implements emergency state-wide restrictions on shed antler hunting

The Department of Wildlife Resources has implemented emergency state-wide restrictions for shed antler hunting to help protect Big Game in Utah.
1 day ago
Utah Primary Election 2020...
Lindsay Aerts

New bill could disrupt signature gathering path to Utah’s ballot

There could be a significant shift in signature gathering by candidates in order to get on the Primary Election ballot in Utah under a new bill.
1 day ago

Sponsored Articles

Skier being towed by a rider on a horse. Skijoring....
Bear Lake Convention and Visitors Bureau

Looking for a New Winter Activity? Try Skijoring in Bear Lake

This article about skijoring is sponsored by the Bear Lake Convention & Visitors Bureau. Participate in Skijoring the Bear on February 20th, 2023.  What is skijoring? Skijoring is when someone on skis is pulled by a horse, dog, animal, or motor vehicle. The driver leads the skiers through an obstacle course over jumps, hoops, and […]
Banner with Cervical Cancer Awareness Realistic Ribbon...
Intermountain Health

Five Common Causes of Cervical Cancer – and What You Can Do to Lower Your Risk

January is National Cervical Cancer Awareness month and cancer experts at Intermountain Health are working to educate women about cervical cancer, the tests that can warn women about potential cancer, and the importance of vaccination.
Kid holding a cisco fish at winterfest...
Bear Lake Convention and Visitors Bureau

Get Ready for Fun at the 2023 Bear Lake Monster Winterfest

The Bear Lake Monster Winterfest is an annual weekend event jam-packed full of fun activities the whole family can enjoy. This year the event will be held from January 27-29 at the Utah Bear Lake State Park Marina and Sunrise Resort and Event Center in Garden City, Utah. 
happy friends with sparklers at christmas dinner...
Macey's

15 Easy Christmas Dinner Ideas

We’ve scoured the web for you and narrowed down a few of our favorite Christmas dinner ideas to make your planning easy. Choose from the dishes we’ve highlighted to plan your meal or start brainstorming your own meal plan a couple of weeks before to make sure you have time to shop and prepare.
Spicy Homemade Loaded Taters Tots...
Macey's

5 Game Day Snacks for the Whole Family (with recipes!)

Try these game day snacks to make watching football at home with your family feel like a special occasion. 
Happy joyful smiling casual satisfied woman learning and communicates in sign language online using...
Sorenson

The Best Tools for Deaf and Hard-of-Hearing Workplace Success

Here are some of the best resources to make your workplace work better for Deaf and hard-of-hearing employees.
Even Corporate America thinks the stock market is overvalued