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Have Stocks Moved Too Far, Too Fast?

By Morgan Housel - Apr 16, 2013 at 5:14PM

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Liz Ann Sonders on the market.

As the economy dawdles, many are left wondering whether stocks are getting ahead of themselves. The Dow Jones (^DJI 1.98%) is up 14% in the last year, even after Monday's plunge. The index has risen on more than 60% of trading days this year, well ahead of long-term norms. And, of course, we've been here before. The S&P 500 (^GSPC 1.86%) trades near where it did in 2000 and 2007 -- before respective crashes.

Have we come too far, too fast? Is the market overvalued? No one knows, but everyone has an opinion.

Last week I asked Charles Schwab chief investment strategist Liz Ann Sonders. Here's what she had to say (transcript follows):

Sonders: I don't think we've come too far too fast, nor do I think that there aren't economic fundamental justification for what the market has done. If you look at the last two times we've been at these levels, back in October of 2007 and then back in 2000, about March of 2000, and you compare most typical market metrics -- you look at earnings; you look at valuation on those earnings; you look at cash flow; valuation on the cash flow; sales; a lot of technical measures; percentage of stocks trading above their moving averages; a lot of sentiment measures -- in virtually every case, we look better, certainly better than we did in 2000 because we had, in hindsight, a hugely overvalued market, but quite a bit better than we did in 2007. So I think, just looking at the basic, typical market metrics, I think the market looks pretty good here.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,880.24 (1.98%) $618.34
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,973.75 (1.86%) $72.39

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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