https://www.forbes.com/sites/mikepatton/2020/08/18/us-stock-market-hits-record-77-overvalued/#73b55e1d358c
Jinny 요약
Despite the worst GDP drop in the U.S., a rising stock market has created the record overvaluation. And with a lack of alternatives, you might say stocks are the only game in town. Moreover, suppressing interest rates helps to “steer” investors into stocks.
When an abundance of money flows into stocks, it tends to push stock prices higher, which in turn makes investors feel wealthier. This is known as the “wealth effect.” Low interest rates also make it easier to repay debt.
But if valuations remain extremely elevated for an extended period, when the correction finally comes, the market will be more prone to a serious decline.
Julie 요약
The U.S. Stock Market shows a historically high record 77% overvalued based on the market capitalization to GDP ratio. During the coronavirus pandemic, GDP has fallen while stocks have risen, creating the highest level of overvaluation since 1971. With such an extreme level of overvaluation, there are worries because even the Tech Bubble burst in March 2000, the degree of overvaluation was 49%
Current stock market has disconnected from the underlying economy. Abundance of Cash flows into stocks with limited investment options and it tends to push stock prices higher. Valuations could remain extremely elevated for an extended period. However, when the correction finally comes, the market will be more prone to a serious decline.
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