Bloomberg warns: US stocks are in an irrational prosperity, what does the Greenspan valuation indicator reveal?

The Wall Street bull market continues, with the US stock market continuously hitting new historical highs since last year. However, a valuation indicator of the US stock market shows that the current valuation is at the same level as when former Federal Reserve Chairman Alan Greenspan commented on 'irrational exuberance' in December 1996, and has reached the highest level since 2002, indicating that the downside risk of the US stock market has increased. (Background: The number of bankruptcies in the US has reached a new high since the financial crisis! Wall Street: The risk of economic recession may trigger a major pullback in the first half of the year.) The Greenspan valuation method compares the earnings yield of US stocks with the US 10-year Treasury Intrerest Rate. The basic logic of this indicator is to measure whether the valuation of US stocks is reasonable by comparing the return on the stock market and risk-free assets, or if it has reached irrational prosperity. According to a report by Marketwatch, Bloomberg columnist John Authers used the Greenspan valuation method to calculate and found that the current valuation of US stocks has reached the highest level since 2002, consistent with the level when former Federal Reserve Chairman Alan Greenspan commented on 'irrational exuberance' in December 1996. This indicates that the downside risk of the US stock market has increased. The Nasdaq index of the US stock market peaked in 2000, triggering a stock disaster after the burst of the internet bubble. However, it took more than three years from Greenspan's warning to reach the peak, so the response time of this indicator may be longer. At the same time, the recent results of this indicator are not closely related to the stocks themselves, but more because of the surge in the US Treasury Intrerest Rate, the main reason for the recent sharp rise in the US Treasury Intrerest Rate is the market's concerns about stubborn inflationary pressures and the prospects for Trump's second term. Nobel Prize-winning economist Paul Krugman explained that the high rise in the US Treasury Intrerest Rate is because the market is beginning to believe that Trump will implement ideas such as high tariffs, corporate tax cuts, and large-scale expulsion of illegal immigrants. If Trump does implement these measures, it is very likely to boost inflation and force the Federal Reserve to temporarily suspend rate cuts. The US 10-year Treasury Intrerest Rate rose for the fourth consecutive day on Wednesday, closing at 4.683%, with a cumulative increase of 12 basis points. The pricing of US stocks is at a perfect level and is prone to corrections. Federal Reserve Board member Lisa Cook also commented on US stocks on Monday, pointing out that at the current prices, the risk of a significant fall in the stock market and corporate bonds is high. As of Wednesday, the S&P 500 index was only 3% lower than its historical high. Peter Oppenheimer, Chief Global Stock Strategist at Goldman Sachs, stated in a report released on Thursday that the current 'perfect' market environment for making money may be difficult to sustain, given the uncertainty surrounding the rise in the US Treasury Intrerest Rate, overvaluation, and further rate cuts. Recently, the strong rise in the US stock market has made the current stock market valuation approach perfection. Although we expect the overall stock market to continue to rise this year, mainly driven by corporate earnings, the stock market is increasingly vulnerable to correction impacts, especially if the US Treasury Intrerest Rate continues to rise, or if economic data and earnings performance disappoint. Peter Oppenheimer pointed out three factors that complicate the outlook for the US stock market in 2025, including the rapid rise in the stock market possibly already reflecting optimistic expectations for economic growth in 2025, high valuations limiting future returns on stocks, and abnormally high market concentration increasing portfolio risk. Related reports: BTCprice drops to $96,000, Nvidia plunges 6% causing a market crash, will the Federal Reserve only cut interest rates once this year? Will Buffett's 'hoarding cash' foreshadow a crisis in the US stock market? Analyzing 20 years of historical data from Berkshire Hathaway will give you the answer. Wells Fargo warns: The disconnect between the US stock market and the real economy continues to widen, be careful of a short-term major plummet. The article 'Bloomberg warns: US stocks are in irrational prosperity, what does the Greenspan valuation indicator reveal?' was first published on BlockTempo, the most influential blockchain news media on the move.