Record valuation on the US stock market: Danger of an imminent correction!

The US stock market is currently reaching record valuations reminiscent of Alan Greenspan's warnings about “irrational exuberance” in 1996. Current ratings are the highest since 2002 and reflect a pattern of ratings as of December 5, 1996 finance.net reported. Greenspan's preferred valuation method compares corporate earnings with 10-year U.S. Treasury yields.

The earnings yield, which is the inverse of the price-to-earnings (P/E) ratio, is at an all-time high. This was boosted by a rise in 10-year US Treasury yields on inflation concerns. On January 8, 2025, the yield on these bonds increased by 12 basis points for the fourth consecutive day. Peter Oppenheimer, strategist at Goldman Sachs, describes current stock valuations as almost perfect and warns of possible correction risks. Additionally, Fed Governor Lisa Cook said current market valuations are vulnerable to significant declines.

Market developments and forecasts

Despite geopolitical crises such as the Ukraine war and tensions in the Middle East, the US stock market is showing remarkable resilience. Analysts from Morgan Stanley and Goldman Sachs predict that the S&P 500 could rise to 6,500 points by 2025, as Investment Week reported. The bull market in the USA has been going on for over two years, with setbacks quickly being overcome.

Morgan Stanley's Andrew Slimmon notes that the U.S. economy is performing better than expected and there is no impending economic "landing." Expected tax cuts and deregulation from the new Republican administration could further boost economic growth, although trade tariffs are seen as a potential drag factor. Slimmon remains optimistic that these tariffs will not fuel inflation. However, David Kostin, also at Goldman Sachs, warns of risks such as unexpected tariff increases or rising bond yields.

The “Magnificent Seven,” which includes major tech giants such as Apple, Microsoft and Amazon, dominate the market, but their growth rate is expected to slow by 2025. Political conditions could be crucial for market development in 2025, especially with regard to the implementation of growth-friendly measures by the new administration under Donald Trump. Smaller and medium-sized companies as well as mergers and acquisitions could benefit from this policy orientation. However, analysts warn of uncertainties arising from geopolitical tensions and unforeseen macroeconomic developments. Despite these risks, confidence remains high that the healthy development of the US economy and optimistic investor sentiment make a record price in 2025 seem realistic.