This Rocky Stock Market Requires an All-Terrain Portfolio
The bulk of U.S. stock gains in this long-running bull market are due to one variable: the expansion of the price-to-earnings ratio.
Earnings for S&P 500 companies have stagnated since 2014. Stock prices have gone up, however, because the Federal Reserve and other central banks have squeezed all investors to the same side of the risk curve. Stocks, especially high-quality ones that pay dividends, are regarded as bond substitutes; investors now look at the dividends of those stocks and compare those yields to what they can earn in, say, 10-year Treasurys. This strategy will end in tears, as these bond-substitute stocks are significantly overvalued.
Read: World leaders are taking investors down a dangerous economic path
Source: Fool.com
