Federal Reserve Chair Jerome Powell made the kind of headlines this week that give stockbrokers ulcers. After a speech in Rhode Island on Tuesday, the central banker was asked about frothiness in the markets. As Fortune’s Jim Edwards reported, his reply contained six words that investors didn’t want to hear: “Equity prices are fairly highly valued.” The S&P 500 fell 0.55% on Tuesday and another 0.28% on Wednesday. Still, that’s after a string of record highs throughout the summer.
Bank of America Research followed with a particularly well-timed research note on the S&P 500 and its soaring valuations, declaring that the benchmark index is trading at “statistically expensive levels” on 19 out of 20 key metrics. Four of these valuation metrics have just reached all-time highs, noted the team led by Savita Subramanian, head of U.S. equity strategy.
On virtually all widely observed valuation gauges, Subramanian’s S&P 500 Relative Value Cheat Sheet found a wildly inflated index. The four record metrics are noteworthy. First is the index’s price-to-book-value ratio, which has surged to 5.37x, nearly double its historical average of 2.75x. The market-cap-to-GDP ratio—a popular Warren Buffett indicator—has also climbed to a record 1.8x, far outpacing its typical average of 0.69x. The price-to-operating-cash-flow and enterprise-value-to-sales metrics also reached new peaks, underscoring the unprecedented enthusiasm among investors.
