After long eras of over-valuation, like the period we have been in since the late 1990s (with the notable exceptions of the lows after the 2000 and 2007 crashes), stocks have also often transitioned.
Why isn’t anyone talking about those facts?
- First, as mentioned, no one in the financial community likes to hear bad news or to be the bearer of bad news when it comes to stock prices. It’s bad for business.
- Second, valuation is nearly useless as a market-timing indicator.
- Third, yes, there is a (probably small) chance that it’s “different this time,” and all the historically predictive valuation measures are out-dated and no longer predictive.
The third reason is the one that everyone who is bullish about stocks these days is implicitly or explicitly relying on: “It’s different this time.”
Just so you know, every time there is a long bull market like the one we’ve had, people come up with lots of reasons to explain why it’s different this time. (And understandably so! Everyone wants the bull market to continue, and no one wants to miss further gains.) They did that in the late 1920s. They did that in the late 1990s. They did that in 2007. Usually, however, it isn’t different this time, and normality reasserts itself with a vengeance.