The stock exchanges are expensive but the bubble is on bonds. Thus investing has become an enigma

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The S&P 500 index, the most important in the world stock market, rose from the beginning of the year to November 15th by 26%, reaching over 3,100 points. These are unexplored levels, as well as the Nasdaq technology (which exceeded 8,000 points, over 3,000 more than those 5,000 from which it bounced up to 900 points in the 2000s when the Internet stock bubble burst) and the Dow Jones (+ 20% from the beginning of the year and very close to 28 thousand points).

From the period minimums, which date back to March 6th 2009 when theS&P 500 slipped into the doubly fatal threshold of the 666 points (it is also the number indicated in the Bible, Apocalypse chapter 14, as the number of the devil) the American Stock Exchange has grown by 367% (so it has more than quadrupled the value) without counting the dividends distributed in the meanwhile (which although thinner than those distributed in Europe because in the United States a logic of buy backs prevails over that of the coupons, still represent another 2.5% per annum to be included in the final calculation).

Wall Street risks a financial bubble?
The question that arises in cases like these, those in which the expansionary phase of the stock exchanges seems to have no end, is precisely if we are in the presence of a financial bubble. If this were the case, entering these levels could be extremely dangerous because when the bubbles burst they hurt. And whoever remains with the match in hand risks losing a large part of the invested capital.

To assess whether a stock exchange is expensive or not, analysts mainly use the multiple that measures the ratio between the stock market price and profits. As shown in the opening chart of the article, the S&P 500 index at current values ​​(which as mentioned are the maximums of all time) is worth 18.1 times the expected profits for the next 12 months. At the beginning of January 2019 the multiple was lower (15 times). This means that with this year's rise the most important stock exchange index in the world has certainly become more expensive.

What is striking, however, is that, in any case, it is not a multiple that indicates the presence of a financial bubble. We are not far from the historical average (between 15 and 16 points for this index). So, data in hand, Wall Street is now expensive but it does not seem – provided that expectations for earnings growth for next year are confirmed – that there are the conditions for the outbreak of a financial bubble.