Why Is The Market More Vulnerable Today Than It Was In 2000 Or 2007?

The S&P 500 (INDEX: .INX) is trading near its all-time high, spurred on by stocks that are trading at high price to earnings (P/E) ratios.

Charles Rotblut from American Association of Individual Investors was on CNBC Monday to discuss if the markets are overvalued at the current juncture.

P/E At All-Time High

According to Rotblut, there are currently a lot of worries about macro environment, but he says, "Right now, a lot of people are also looking at the bull market being at six years [and] looking at valuations."

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He continued, "We are looking at P/Es being higher now than they were either at the peak of 2000 or the peak of the 2007 bull market, and that's creating some cautiousness as well, in addition to some of the volatility that we have seen this year so far."

Data Source

Rotblut was asked what data he is using for his valuations and if it has been adjusted. He replied, "We are using adjusted numbers."

"Our data comes from Reuters. It’s about 20, and I look at the median P/E and that's for all stocks in the U.S. exchanges. So, not just S&P 500, I looked at about 7,000 stocks."

Factors Apart From P/E

He agreed that, in secular bull markets, P/Es do touch 20 levels, but he feels "that's one thing. Gross margins right now are higher as well."

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Rotblut explained, "They are running at about 40 percent. So, I think the low inflation, the low-interest rates are definitely helping.

"Certainly if we get to a situation where inflation is higher, that would float cost of goods sold. If we have higher interest rates, that would affect operating margins. So, that would definitely change how we look at things," Rotblut concluded.

 
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