At the start of the historically weakest month for equities there are plenty of reasons to believe stocks may be just about reaching a top - at least in the short term.
The S&P 500 has surged 14 percent this year and is at its highest level in more than 4 years. Not counting 2009 when equities rebounded from their crisis lows, this could be the best year for stocks since 2003 - nearly a decade.
A report showing hiring in the United States in August was again much slower than expected and warnings of a slowdown at Intel and FedEx this week, which will likely foreshadow a very weak earnings season, have not been enough to deter investors buoyed by aggressive central bank action.
After the European Central Bank’s pledge to buy the debt of troubled eurozone countries this week the Fed is widely expected to introduce new stimulus measure in the form of more bond buying when it closes its two-day meeting on Thursday.
“Good news in good news and bad news is good news, largely because of the Bernanke put,” said Eric Kuby, chief investment officer, North Star Investment Management in Chicago.
The S&P 500 is now trading at 13.3 time its forward earnings estimates, meaning investors are willing to pay just over $13 for a dollar of expected earnings from S&P 500 companies.
Although that is below a median forward price-to-earnings ratio of 13.7 since 1976 - according to Morgan Stanley - it is close to the upper end of the range in the low-growth post crisis era of the last 5 years. During that time there has been a median price-to-earnings ratio of 12.9, according to Thomson Reuters data.