Stock markets bounce back after heavy losses - business live

Photo of Stock markets bounce back after heavy losses - business live

All the day’s economic and financial news, as shares claw back some of this week’s losses

Investors should be wary before diving back into the market today, argues Peter Dixon of Commerzbank.

He writes:

The sharp correction in stock markets in the last couple of days should be seen as a warning shot against the market complacency which has been one of the predominant themes of the last 12 months. Indeed, measures of equity volatility continue to suggest that investors are underpricing risk.

We pointed out at the start of the year that equity investors appeared to be increasingly reluctant bulls and were driven more by the FOMO factor (fear of missing out) than the fundamentals, and advised investors to take risk off the table.

Having enjoyed a great run since March 2009, with global equities having generated returns of 300%, it is difficult to imagine that there is much more juice to be squeezed out of the lemon. On a conventional valuation basis, long-term P/E ratios suggest that equities are extremely expensive.

The cyclically adjusted P/E (CAPE) popularised by Robert Shiller suggests that the S&P500 has only once been more overvalued than it is today – the late-1990s tech boom – on a dataset going back 130 years:

Despite today’s recovery, stock markets are heading for their worst week since February, Reuters points out.

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