As of 10:15 a.m. EDT, the Dow Jones Industrial Average (^DJI 0.82%) is down 0.04%, and the S&P 500 (^GSPC 0.49%) is down 0.14% -- in other words, flat. Despite the unrest on the streets of Greece to greet German Chancellor Angela Merkel and disagreement in Luxembourg among Eurozone finance ministers on how to address a Greek bailout that has veered badly off course, I suspect the focus of U.S. investors is now firmly on the earnings season. With Alcoa (AA +0.00%) only kicking things off after the market close today, expect volatility to be muted during today's session. Surely we're used to that by now.
On a broader timeframe: Five years ago today, on Oct. 9, 2007, both the Dow and the S&P 500 closed at all-time highs. What is the lesson here? Valuation matters. At 1,565.15, the S&P 500 was valued at a very rich 27.8 times its 10-year trailing average of real earnings (the so-called "Shiller P/E"), nearly 70% above the historical average.
Where does that leave us five years on? Based on yesterday's closing price, the index now sports a Shiller P/E of 21.9 for a premium over the historical average of 33%, which suggests it's no time to be going all-in on U.S. stocks. Long-term investors should consider that the average historical return -- roughly 6.25% annually after inflation -- is a ceiling for expectations from this point forward. Incidentally, income return (reinvested dividends) contributed better than two-thirds of that historical return, which is why one of our top analysts believes you can "Secure Your Future With 9 Rock-Solid Dividend Stocks." Click here to claim your free report and find out which they are.
