On July 20, with the S&P 500 at 940, Goldman Sachs (NYSE:GS) strategist David Kostin lifted his end-of-year forecast for the index from 940 to 1,060. It took just two weeks -- presto! -- for the market to get halfway there by breaking 1,000!

Here are some "winners" and "losers" from a sizzling July:

Winning Stocks

July Monthly Return

Adjusted P/E Ratio (based on average
earnings over prior 10 years)*

Capital One Financial



Intuitive Surgical



Ford Motor



Losing Stocks






CME Group



Sprint Nextel



Source: Author's calculations based on data from Capital IQ, a division of Standard & Poor's.
*Note that the company P/E ratios are not directly comparable to the adjusted P/E ratio for the S&P 500 cited in the text, as the average earnings of the latter has been adjusted for inflation.
**Negative earnings over the last 10 years!

Can it go higher?
Can the market remain on its meteoric trajectory? Of course! There is approximately $3.5 trillion currently parked in money market funds earning less than 1% -- if investors decide they must get in on this rally and re-deploy their cash into stocks, it could certainly push the S&P to 1,060 or beyond. However, no one knows what the market will do in the short term. The more pertinent question is whether it is sensible to pay current prices to own stocks.

Yes, but …
At Friday’s close of 987.48, the S&P 500 is valued at 17.1 times its average inflation-adjusted earnings over the past 10 years -- a premium to the multiple's long-term average of 16.3. Factor in a long, tepid economic recovery, and any premium suggests stocks are now overvalued. As value guru Jeremy Grantham laments in his July investor letter: "After 20 years of more or less permanent overpricing of the S&P, we get five months of underpricing. There is no justice in life!"

3 choices for investors
In that context, investors who wish to increase their exposure to U.S. stocks will be best served by (1) being patient and waiting for better prices, or (2) selecting individual stocks with a careful eye on price. Failing that, there is a wide world outside the U.S. -- international markets, on the whole, look more attractive than the U.S. right now. 

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GMO chairman Jeremy Grantham, one of the most respected living investors, now believes U.S. stocks will return less than their long-term historical average over the next seven years. For that reason, you should have significant exposure to international stocks in your portfolio. Sign up for a 30-day free trial to Global Gains to find out their five best investment ideas right now.

Alex Dumortier, CFA, has no beneficial interest in any of the companies mentioned in this article. Intuitive Surgical is a Motley Fool Rule Breakers recommendation. Sprint Nextel is a Motley Fool Inside Value pick. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.