American Stocks Are Now (Kind Of?) A Bargain

Somewhere Jim Cramer is screaming

According to Bloomberg, American stocks were some of the world’s most expensive five years ago and have now flip-flopped to become some of the world’s most affordable.

Now, that doesn’t make them objectively cheap, only relatively cheap, as stocks in other developed countries get costlier. As recently as six months ago, American stocks were, as Business Insider put it, “extremely expensive.”

In the past year or two, stocks have moved from being “expensive” to “very expensive.” In fact, according to several historically valid measures, stocks are now more expensive than they have been at any time in the past 130 years with the exception of 1929 and 2000 (and we know what happened in those years).

The Times concurred:

stock prices today remain historically expensive, even after the declines of recent weeks. Stocks are more highly valued than at any point from the 1940s through the mid-1990s, relative to long-term corporate earnings.

There have been declines lately, as you’re probably aware. Maybe you’ve heard the groans this winter as people do the numbers?

Since peaking last May, the S&P 500 is down less than 9% — just shy of a correction, which occurs when stocks decline at least 10% from their prior high. (If they fall 20% or more, it’s considered a bear market.) The stock index had hovered below the 10% threshold since falling beneath it on Jan. 14, and last week reached its lowest point since the peak. It was the S&P 500’s first correction since last August.

Still, this is a good excuse to talk about individual stocks for a change as opposed to index funds, more of my personal comfort zone. Are they something you think about? Do you like to get into the weeds to search for the best mix of large cap, medium cap, and small cap options? Or do you hear the words “large cap” and think, “Mmmm, Portobello mushrooms …”?

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