Investors watching pricey-stock trend

NEW YORK — Most everyone along Wall Street agrees that stocks are expensive after their amazing return to record heights despite the still-raging pandemic.

But whether that’s something to worry about is another question entirely.

Analysts have many ways to measure whether a stock is over- or under-valued, rather than simply looking at its price. Because stocks tend to move with corporate profits over the long term, one favored method is to divide a stock’s price by how much profit per share the company made over the previous 12 months. The higher that number is, the more expensive — and less attractive — the stock is.

By that measure, the S&P 500 this month hit its most expensive level since late 2000, shortly after the dotcom bubble burst.

The index also looks pricey by other measures. Compared with what analysts are forecasting for its earnings in the upcoming 12 months, the S&P 500 earlier this month also was at its highest level since 2000.

A third measuring stick, popularized by Nobel prizewinning economist Robert Shiller at Yale University, says the S&P 500 was recently trading at more than 30 times its average earnings over the past 10 years, adjusted for inflation. That’s above its average of 26.1 over the past decade or of 20.5 over the past 50 years.

High valuations are nothing new, when seen through the lens of what’s often called the “Buffett indicator,” which is named after famed value investor Warren Buffett and looks at the total market value of stocks relative to the overall size of the economy. It’s been higher than the U.S. gross domestic product from 2010 onward.

The argument for being worried about such numbers is simple: When stock prices are high, compared with corporate profits, they leave

(AP/Mary Altaffer) A statue of George Washington stands near the New York Stock Exchange. The S&P 500 this month hit its most expensive level since late 2000, when measured in relation to corporate profits.