Five years ago in financial economic history, the situation was a lot like today.
The stock market was fully valued by traditional measures, making stocks more susceptible to a correction, but the economy was accelerating.
Five years ago, the stock market looked risky. Stocks had gained 77% in 2012, 2013 and 2014, before taking a breather in 2015 and 2016.
Stock valuations had climbed sharply from their lows in The Great Recession. In that period, the market’s price-to-earnings ratio rose from way undervalued — trading at 12 times 12-month trailing earnings — to flirt with overvaluation, at 18.2 as of mid- June 2016.
How did things turn out?
On June 24, 2016, England voted to “Brexit” from the European Union, and the stock market plunged 5.3% but rebounded within a few days.
The current financial economic outlook is quite bright but stock valuations are high by traditional price-earnings benchmarks.
Past performance is not a guarantee of what will happen in the future but in the last five years the S&P 500 total return index more than doubled in value.
As fraught as these times may seem, five years ago in financial economic history the situation for investors was a lot like today.
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This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.
This article was written by a professional financial journalist for Forbes Financial Planning, Inc and is not intended as legal or investment advice.