With the S&P 500 index only 2 percent beneath its record high and the bull market having entered its seventh year, many experts are sounding a warning about equity valuations.
"We have been relatively bullish on the market in recent years and believe the bias for stocks remains to the upside, but investors should be concerned," Dan Greenhaus, chief strategist at BTIG brokerage, told the Financial Times
"One thing is clear, whenever the Fed has raised rates at times when equities are richly valued, it has been problematic for investors."
Economists' consensus is that the Federal Reserve will begin raising interest rates around mid-year.
And when it comes to earnings forecasts, analysts aren't too excited. The 496 S&P 500 companies that had reported earnings as of Friday, showed blended profit growth of just 3.7 percent, according to FactSet. And analysts predict profits will fall 4.6 percent in the current quarter, it says.
However, Greenhaus believes the lower earnings forecast is mainly due to the energy sector. "We don't think this is a good development per se, but we do not think it portends the start of a bear market."
Michael Stanes, investment director at Heartwood Investment Management says: "At some point earnings do have to come through to support higher valuation multiples," adding that ''valuations are moving back up to levels last seen in 2007".
Dennis Gartman, publisher of the Gartman Letter, is one of many experts who see European stocks as more attractive than their U.S. counterparts.
"[My] interest is not in owning U.S. shares at this point," he told CNBC
"I think it's still a long-term bull market and corrections ought to have been bought. [Wednesday] I put out a very strong recommendation to be a buyer of equities on this weakness with focus on Europe, [in particular] France and Germany." Gartman cited Japan as well.
"In those markets, every high has been higher, every low has been higher and they are indeed bull markets. It's abundantly clear."
The MSCI Europe stock index had a trailing price-earnings ratio of 18.38 as of Feb. 27. The index has returned 15.3 percent so far this year.
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