Unless you have been ignoring the news completely, you can not help but have noticed that the Dow Jones Industrial Average stock market index just made another all time high last week. It blew past 25,000. In fact it took only 23 trading days for the market to roar from 24,000 to this latest round number. This represented a new record for fewest number of days. The NASDAQ similarly broke 7,000.
To say that the prices of stocks have never been so on fire would be an understatement. Yet it is important to keep something in mind amidst all of the market participants’ rejoicing. The numbers which are truly significant are valuations (not prices). This refers to the price of the corporate stock compared to the firm’s own sales, assets, and earnings.
These days the average PE Price to earnings ratio has risen to over 26 for the S&P 500. It translates to current average S&P corporate profits of only 3.8 percent of stock share prices. These are not at all good underlying fundamentals. In fact, they make the shares highly expensive today.
To put this into a historical perspective, consider that the ratio is now around 70 percent higher than the longer term average of the S&P 500 PE ratio. You should know that the other points when this ratio held this high for a sustained period of time were immediately before the crashes of 1929, 2000, and 2008.
This is not the only important metric that is significantly out of its historical trend though. The average S&P 500 Price to Book Value has shot to over 25 percent more than its average longer term. Looking at the average Price to Sales ratio in the S&P shows the highest numbers you have ever seen.
Similarly the CAPE ratio of Cyclically Adjusted PE has reached over 33. Today’s number is twice as high as the longer term average. The only time this was ever greater was in the now infamous late 1990‘s and the dot-com bubble.
In today’s environment many people have come to the short sighted conclusion that stocks will only continue moving higher indefinitely. In case the memories of the three major stock market crashes just referenced above are not enough, there is also the Flash Crash to ponder.
On May 6th of 2010 it only took ten minutes for the stock market to collapse by an eye watering ten percent. It is astonishing how quickly stocks can turn around on investors. If it happened before it could occur again next time.
Is Your Retirement Portfolio Protected from the Runaway Stock Market?
Markets can move rapidly when many investors begin to trip over each other trying to reach the exits. Sooner or later these out of line valuations will have to adjust back to a historical norm. When the stock market finally does sell off or severely correct, it will be too late to protect your retirement portfolio from the carnage. Now is the time to take measures. The encouraging news is that you do not have to lose sleep over the stock market wrecking your retirement holdings.
Gold is an investment alternative that moves in a different direction from stocks. This precious metal has historically proven itself in market crashes and pull backs numerous times before. You can count on it to reduce the losses in your overall portfolio in times of market crises. Click here now so that you can get your no cost and no-obligation gold IRA rollover kit from the top rated in the world gold company Regal Assets. This will enable you to obtain the information you desperately need in order to protect and hedge your IRA accounts via a partial diversification of your retirement funds into actual physical, tangible gold.