U.S. stock market overvalued, headed for drop-News Analysis

U.S. stock market overvalued, headed for drop-News Analysis

Despite a flagging economy and growing indications of a weak recovery, U.S. stocks continue to climb at a steady clip. But analysts said the market is overvalued and headed for a drop, Xinhua reported.

Meredith Whitney, Chief Executive Officer of the Meredith Whitney advisory group, expressed pessimism about the market in an interview this week on CNBC, a cable TV network.

"I haven't been this bearish in a year," she said. "I look at the board and every single stock from Tiffany to Bank of America to Caterpillar is up. But there is no fundamental rooting as to why these names are up, particularly in the consumer space."

While the economy grew last quarter at a seasonally adjusted 3. 5 percent from the previous quarter, many consumers are still feeling the sting of unemployment, which hit double digits in October for the first time since April 1983 and is expected to rise further. The underemployment rate -- a measure of part time workers who would prefer full-time work and people who have given up seeking work -- stood at 17.5 percent in October.

The housing market is still faring poorly and millions of homes are headed for foreclosure over the next few years, analysts said.

Also troubling is that the economy may be headed for a double dip recession in 2010, although it may not be as severe as last year's economic nose dive, Whitney said.

Those factors could bode ill for the market and many stocks are likely to return to "tangible book value," although they may avoid plunging to March levels, when the Dow Jones industrial average fell to lows not seen since 1997, she said.
Douglas Elliott, fellow at the Washington, D.C.-based Brookings Institution, tags the overvaluation at around 20 percent.

The market's recent rise can be traced back to March, when stocks tumbled due to a number of factors including concerns over the financial sector and the global economy.

But once it became clear that the downturn would stop short of becoming the next Great Depression, the market bounced back in one of the strongest rallies in years.

Now it is in for another slide, once it catches up to all the negative indexes that indicate the economy will slog toward a recovery at a sluggish clip instead of bouncing right back to pre- recession levels, he said.

"So you are going to be looking at an unexciting (market) environment and one that is a bit scary," he said.

Still it is difficult to forecast when the drop will occur -- even financial advisors are often wrong, Elliott said.

Desmond Lachman, resident fellow at the Washington, D.C.-based American Enterprise Institute, said: "The market looks like it is somewhat divorced from the fundamentals."

"It thinks we are going to have a 'v shaped' recovery," referring to a rebound that returns to pre-recession levels -- a prediction that is unlikely to pan out, he said.
But it is unclear how long the current overvaluation will last.
"When you get a movement that's divorced from fundamentals it could go on for a while," he said. "But at some point the market will correct once it sees (economic indicators) come out on the disappointing side."

"Whether it's three months or six months is hard to know but you are talking about that kind of time frame," he said.

But whenever it occurs, it is unclear how significant an impact a 20-percent drop will have.

Elliott said: "It will have some effect on confidence but that' s not a big enough move to have a huge impact."

REASONS FOR THE MARKET'S RISE
Besides bouncing back from record lows, Lachman said another factor driving the market is low interest rates. "People are taking on a lot of risk because interest rates are low and the Fed is pumping huge amounts of liquidity into the system," he said.

Elliott said borrowing for certain types of investments -- such as a liquid financial investment as collateral on a loan -- has also pushed up the market.

The market has also escaped many of the woes that have befallen small companies, which have suffered tremendously under the recession and are having difficulty obtaining much-needed credit, he said. But that is a non-issue for most large businesses listed in the stock exchange.

So with the market headed for a drop, where should the average investor park his or her money?

Elliott said now is not the time to play the market and expect large short-term returns. Key is diversification and long term planning, he said.

"There's no reason to think the average investor should have a great idea of where the market is going," he said.

Some experts said sitting on cash is not a bad idea, as it is difficult to map out a precise course for the market.

Lachman said: "To chase this market when it is running up, one is just exposing one's self to risk."

Saudi-led coalition intercepts explosive-laden drones launched by Yemen's Houthis
Saudi-led coalition intercepts explosive-laden drones launched by Yemen's Houthis
5 IS militants killed in airstrike in Iraq
5 IS militants killed in airstrike in Iraq
UAE selects first Arab woman for astronaut training
UAE selects first Arab woman for astronaut training
Loading Bars
Latest
Cargo movements in Iran’s Anzali port soar
Saudi-led coalition intercepts explosive-laden drones launched by Yemen's Houthis
Israeli scientists discover way to block spread of brain cancer
Weekly review of Azerbaijan's oil and gas sector
5 IS militants killed in airstrike in Iraq
South Korean PM arrives in Tehran
Kyrgyzstan's referendum on new Constitution takes place, turnout was 36.75%
Turkey to emerge from auto chip crisis through local production
Trend, Kabar news agencies talk joint projects, agree to expand co-op
Iran's Saipa Group declares its manufacturing data
Uzbekistan to commission its first solar power plant in September
Exports from Iran's Isfahan Province decreases
Iran - among major countries in terms of diversity in nuclear industry
Iran’s Bahar Azadi gold coin price still falling
Cargo transportation via Baku-Tbilisi-Kars railway in Q1 2021 increases
Iran's Energy Exchange announces products to be on sale on April 12
Pakistan extends full support for reconstruction of Azerbaijani liberated lands - expert
Northeastern Iranian Prov exports $3b non-oil products
Kazakhstan reveals plans on rising petrochemicals production
Int'l community should be involved in restoration of Azerbaijani liberated lands - expert
Azerbaijani FM takes part in round table organized by ADA University (PHOTO)
Europe needs a more ambitious COVID recovery plan, says France's Beaune
Azerbaijan publishes latest data on vaccinated citizens
Local elections and referendum in Kyrgyzstan: Voting ends
NCDC Head: Georgia's epidemiological situation deteriorates
Turkey successfully tests hybrid rocket engine for moon mission
Azerbaijan confirms 2,414 more COVID-19 cases, 1,695 recoveries
Africa's COVID-19 cases pass 4.34 mln: Africa CDC
Those who ordered missile strikes on Ganja are responsible for war crimes - top official
Glad to see that Nagorno-Karabakh conflict is over - Hungarian official
Khazar Consortium in Turkmenistan opens tender for plumbing materials purchase
Azerbaijan showed great heroism during Karabakh war - Turkish Presidential Administration rep (Exclusive) (VIDEO)
Iran - one of radioactive drugs exporters
Turkey names 2M2021 volume of cargo shipment via local ports from Ukraine
Visit of Turkic Council’s delegation to Azerbaijan’s Ganja city starts (PHOTO)
Goal of Turkic Council’s delegation's visit to Aghdam was to see Armenian savagery - Assistant to president
Azerbaijan's Aghdam - clear example of urbicide, says top official (PHOTO)
UAE selects first Arab woman for astronaut training
Azerbaijan moving to new stage of its development – Uzbek Information and Mass Communications Agency rep
Turkmenistan Railways opens tender for purchase of material, technical resources
Cargo movements in Iran’s Bushehr port grow
Kazakhstan’s Vagonservice company opens tender to buy oil filters
Situation in Azerbaijan’s Aghdam district - unprecedented barbarism - Turkish Presidential Administration rep (VIDEO)
Iran reveals COVID-19 data for April 11
Indonesia's 6.1-magnitude quake leaves 8 deaths
Delegation of Turkic Council reviews building of Aghdam Drama Theater destroyed by Armenians (PHOTO)
Azerbaijani Finance Ministry to auction mid-term government bonds
Russia reports over 8,700 daily COVID-19 cases
Turkmen company exports batch of formwork sheets to Turkey
Delegation of Turkic Council visits Azerbaijan’s Aghdam Juma Mosque (PHOTO/VIDEO)
Delegation of Turkic Council visits Imarat cemetery destroyed by Armenians (PHOTO/VIDEO)
President Ilham Aliyev plays very important consolidating role in Turkic Council - SecGen (EXCLUSIVE)
Buy/sell operations at Iran Mercantile Exchange disclosed
Georgia reports 707 coronavirus cases, 592 recoveries, 8 deaths
Uzbekistan, Turkey strengthen trade, economic co-op
Visit of Turkic Council's delegation to liberated Aghdam starts (PHOTO)
Weekly review of Azerbaijani precious metals market
8 rescued, 21 trapped in coal mine accident in Xinjiang
Iran discloses details of exports from industrial parks of Semnan Province
Accident reported at Iran's nuclear facility
Copper ores and concentrates rank first in list of Georgian export
Azerbaijani MoD shows footage from Fuzuli's Ashaghi Rafadinli village (VIDEO)
President of Kyrgyzstan casts vote in local council elections, referendum
India records over 150,000 daily COVID-19 cases, tally at 13,358,805
Saudi-led coalition intercepts Houthi drone
Turkmenistan signs decree on rice production
Number of enterprises put into operation in Iran's Gilan Province revealed
Azerbaijani Gadabay's Executive Office to engage landscaping services via tender
Turkish Airlines to put its 737 Max jets back in the air next week
Kazakh COVID-19 vaccine to be bottled in Turkey
Submarine cable to connect electrical networks of Georgia, Europe to be additional direct channel for telecommunication traffic
IMF, World Bank urged to contain pandemic with fair, efficient distribution of vaccines
South Korean battery makers agree last-minute deal in boost to Biden's EV policy
Egypt, Sudan reject Ethiopian proposal for data sharing on Renaissance dam
Bezos, Musk top Forbes' record-setting billionaire list
Turkey registers more than 52 600 new coronavirus cases
China-Brunei trade grows by over 70 pct in 2020
Argentina's economy minister heads to Europe to woo finance officials over debts
US boosts imports of Turkish-made clothes
Turkey sends off 2nd boron export train to China
First kidney transplant performed in Turkmenistan
Bahar Azadi gold coin price continues to fall in Iran
Iran unveils data of gasoline and petrochemicals exports
New transmission line to provide opportunities for both Georgia’s and EU energy network - expert
Weekly review of key events in Azerbaijan's transport sector
China fines Alibaba record $2.75 billion for anti-monopoly violations
Italy reports 344 coronavirus deaths on Saturday, 17,567 new cases
Azercell’s “Kabinetim” mobile app exceeded 1 million downloads
Pakistani FM to visit Tehran
Funeral for UK's Prince Philip to be held on April 17
Pinterest becomes latest platform to appoint Turkey representative
Italy's economy seen growing 4.1% this year
Volume of cargo loaded, unloaded in Iran’s Bandar Lengeh port announced
Turkmenistan’s growth of trade turnover in 1Q2021 announced
Turkish electrical goods' 1Q2021 export to Uzbekistan spikes
Azerbaijani president's assistant talks Turkic Council media co-op's systematization
Hungary considers Turkic Council member states important partners
Iran's Energy Exchange announces products to be on sale on April 11
Uzbekistan ready to actively partake in restoring Azerbaijan's liberated territories
Azerbaijan confirms 2,192 more COVID-19 cases, 1,554 recoveries
All news