Are Stocks Cheap?

Each and every day, we are bombarded by a never-ending series of asset-gatherers whose sole aim in life is to convince investors to put more money to work. Whether it is because ‘we are climbing a wall of worry’, whether ‘long-term’ equity investors always do well, whether the ‘cash on the sidelines’ is coming out (note – remember there is a seller for every buyer and a buyer for every seller); the most frequently proposed reason for buying stocks is ‘because they are cheap’. No matter where they are trading – high or low – they are cheap. Well, in an attempt to suggest otherwise – or at least provide fact rather than accepted wisdom, the following two charts from Morgan Stanley’s Adam Parker provide the reality that, in fact, stocks are not cheap - and given where rates are, they are in fact expensive. Empirical fact not fiction.
S&P 1500 – Price to Forward Earnings at its long-term median – and highs post-crisis.

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