, Columnist
The Market's Goldilocks Era Is Nearing an End
It seems like a good time to take a more cautious approach to U.S. and global stocks.
Markets are looking toxic.
U.S. stocks have enjoyed a nearly uninterrupted bull market since late 2009. Two factors have helped create a Goldilocks scenario that helped drive this surge. First, the shock administered by the 2008-2009 financial crisis left stocks significantly undervalued, creating plenty of room for equity prices to recover. Second, U.S. inflation has consistently held below the Federal Reserve’s 2 percent target, leaving the central bank with little reason to tighten monetary policy.
Conditions are now changing. Our favorite indicator for U.S. equity valuations now shows that the S&P 500 index has become slightly overvalued. This overvaluation is not dramatic, but it is the largest since 2008.