It’s time to become wary of stock prices.
The market’s impressive rally means stocks are at higher levels relative to their earnings than at any time in over three years, while also more expensive based on dividends and other valuation measures—all potential reasons for caution.
It’s not yet time to bail on the market. The economy is showing signs of improvement and stocks aren’t yet at troublesome levels. But the more extreme valuations go, the greater risk there is for a correction, analysts and investors say.
That may well have been on the minds of some traders Friday, when the Dow Jones Industrial Average dropped more than 200 points in the month’s last afternoon of trading—wiping out the week’s earlier gains.
Of course, the market is still up sharply for the year—the Dow having risen 15.35% and the Standard & Poor’s 500-stock index climbing 14.34%.
