This is a great summation of where we are, from the always on point Nicholas Colas:
With the S&P 500 closing above 2400, it is time to once again ask the question: are US stocks still cheap enough to own? The answer based on fundamentals is “Yes”. Earnings growth was strong in Q1 (+13.6%) and Q2’s expectations are low enough to beat (just 5.8%). Interest rates are still low at 2.34% on the US 10 year, partly buttressed by expected Fed rate policy through the balance of 2017. No, at 17.5x forward earnings, equities are certainly not cheap. But you own stocks for the hope of upside revisions to earnings and a temperate environment for rates. Those factors exist right here, right now. What worries us? First, volatility remains low. That’s a sure sign that everyone sees the rosy scenario we’ve just outlined. Second, long run historical measures of valuation show we shouldn’t expect much from US stocks in terms of future returns. The Shiller PE (trailing 10 year) was at 27.2 on January 1, 2007; it is 29.5 now. Compounded 10 year price returns for the S&P 500 since 2007 are just 4.8%. Bottom line: everyone believes the same thing (equities will work), and the crowd will be right (albeit with subdued returns) until it is very, very wrong. And that time is not yet here.
The Witching Hour for Stocks
Convergex – May 15th, 2017