You’ve probably seen a number of reports indicating that U.S. stock indexes have valuations above or near historic highs. Here’s an alternate view. The Leuthold Group uses six measures to value U.S. stocks. In aggregate these measures show that stock valuations are around the levels of 1997. That could mean the current rally has about two years and gains of 60% in front of it. Of course, that’s not a prediction. It’s an exercise intended to put the current situation in some perspective. Also, Leuthold’s asset allocation funds don’t have maximum U.S. stock allocations.
“You’ve seen CEO, consumer confidence bouncing back, there is more interest in the stock market, but it’s still nothing like late 1990s,” Doug Ramsey, Leuthold’s chief investment officer, said by phone. “If cyclical conditions remain positive, this thing has got some room to melt up.”
Leuthold’s study is hardly an all-clear signal. Saying stocks are cheaper than they were at the top of the biggest valuation bubble in modern history is a long way from saying they’re cheap. Mostly it dramatizes the excesses of that era, while reminding people that not all rallies look alike.