When’s the next crunch?

What’s keeping share prices so high, and how long can it continue? John Stepek investigates.

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Stock prices are sky-high
(Image credit: 2017 Getty Images)

"Why are stockmarket prices so high?" asks Jeremy Grantham of US asset manager GMO in his latest newsletter. A well-known value investor, Grantham can be forgiven for feeling frustrated. You may question valuation indicators such as the cyclically adjusted price/earnings ratioor Tobin's Q (which looks at what it would cost to build all the firms in the market from scratch, versus their current market value) or even Warren Buffett's favourite, the stockmarket-capitalisation/GDP ratio. But you can't deny that US stocks in particular are very pricey compared with nearly any other period that wasn't a bubble market such as 1929 or 2000. So what's keeping them at these levels, and how long can it continue?

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.