As stocks rally, so do pricey P- E ratios

‘ There’s no denying that the market isn’t cheap,’ pros say

There’s a looming downside to the U. S. stock market’s recent run: Stocks are getting pricey again.

The nearly 9% surge for the large- company Standard & Poor’s 500 index since the late- June post- Brexit low has pushed its price- to- earnings ratio — a common metric used to measure if the market is cheap or pricey — to 17.2. The market’s current valuation is well above the 15 times earnings it was trading at the 2016 market low in February and pricier than the average P- E of 14.7 going back almost 50 years, data from Thomson Reuters show. The S& P 500 on Wednesday hit a new high of 2173.02.

While the stock market isn’t near the market top in 2000 — when its P- E topped 30 — it is still high by historical standards, and that could make it tough for stocks to climb, Wall Street pros say. Still, aboveaverage P- Es alone normally aren’t enough to spark a stock decline; it usually takes some exogenous event or sharp downturn in the economy to spur selling.

“There’s no denying that the market isn’t cheap,” says Paul Hickey, co- founder of Bespoke Investment Group.

Stock prices are growing expensive as the bull market moves deeper into its seventh year, which is not unusual. And even though stocks theoretically get more risky as valuations swell, P- E ratios could move higher as investors start pricing in better corporate earnings and economic growth in the second half of the year. U. S. stocks are also attractive when compared to other investment alternatives, such as the 10- year U. S. government bond, which yields less than 1.6%.