Planning Briefs

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.