Article 2 Essay

Submitted By smoli028
Words: 479
Pages: 2

Sticker Shock—Stock Valuation at 10-Year High

Throughout the last few years, out economy has seen a number of different fluctuations; we’ve seen everything from high peaks to very low troughs. In the past, it’s been very fortunate for us, but more recently, it has come to affect our standard of living. Luckily for us, we’re not on an upward rise, but two or three years ago, we were in a hole that has left us with things to worry about…even now. One such case is stock valuation. At the beginning of 2015, stocks were valuated at a higher price than they had been since 20015; despite the frightening sight, upon further inspection, it becomes clear that there shouldn’t be much cause for concern. In fact, during that time, the S&P’s price-to-earnings ration went up 16.6, which is the highest it’s been since 2005, and even above the average in years past. The reality is that much of the inflated valuation from stocks derives from the reaction that energy sector analysts had to the 2014 plunge in oil, which at the time was around 50%.
In addition to this, the treasury yield, which is basically the return on investment for American government debt obligations, has dropped to levels that were not anticipated in years prior. This has caused a domino effect, for lack of a better word, that has had ramifications throughout the financial sector. In fact, investors no longer have an interest in buying insurance, due to the fact that the VIX has also seen a decrease in percentages (about 13%). Despite this, however, we must keep in mind that these issues seem sever only in the short-run. As is often noted, short-run effects, more often than not have different long-term products, and that is exactly the case here; soon, all these issues will dissipate into the market and have…