San Diego Union-Tribune (Sunday)
ECONOMISTS
YES
The U.S. economy in 2019 was generally healthy with GDP growing at a moderate rate. In early 2020, the jobs market was strong and the probability of a recession over the next 12 months was low. However, trading partners were experiencing slowing growth, trade disputes continued to contribute to uncertainty, and the Fed was not expected to raise interest rates anytime soon. Given these conditions, seeing U.S. stock indices reach record highs was surprising.
YES
By several measures, the stock market was overvalued before the coronavirus scare hit. These include: (1) A price-earnings ratio above 18, the highest level since the early 2000s; (2) a price-earnings to growth ratio of 1.8 (anything above 1 means the market is considered overvalued), the highest since that measure was developed in 1986; (3) the U.S. equity market capitalizationto-gdp ratio at an all-time high; and (4) the cyclically adjusted price-earnings ratio at its highest level since the dot-com bubble of 2000.
YES
A correction was inevitable. The potential for pandemic is real and clearly catalyzed the correction. This is the type of worldimpacting event that disrupts world trade and global health. The only real question is the depth and length of the correction. What I fear is what we still don’t know about this virus, how it mutates, and its impact on the world economy. And that will determine if this is a stock market correction, or an anticipation of something much worse.
YES
Several measures indicated overvaluation in terms of either record or multi-year highs. These included the ratios of stock prices to earnings or this ratio adjusted for long-term earnings growth. Nobel Laureate Robert Shiller’s cyclically adjusted index approached levels last seen in the aftermath of the 2000 “dot-com” bubble, although Professor Shiller has said that the “exuberance” of that era has been absent this time. Still, anything could trigger a correction and the coronavirus has certainly provided that shock.