"upenn" said : Is the U.S. Stock Market Headed for a Bubble?

A groundswell of concern is building on Wall Street that the U.S. stock market is in dangerously high territory. Large multinational corporations, however, already have effective tax rates that are substantially lower than current statutory rates because they engage in sophisticated tax avoidance activities. "Unless you're extremely tuned to the market and have very good foresight as to what's going to happen, it's very hard to time the market." "For example, one might argue that corporate tax reform will lower corporate tax rates, which will provide a significant boost to future earnings. Last week, he told CNBC that the U.S. stock market "hasn't been this overvalued except a couple of times around 1929 (the Great Depression) and around 2000.


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Stock Market Highs And Corporate Financial Engineering

Note that there was a drop in corporate stock repurchases last year of 6.3 percent from the year earlier. With this kind of environment, there is little need for corporate stock buybacks. In terms of stock valuations, Robert Shiller's Cyclically Adjusted Price Earnings ratio is now at 28.46, the highest level achieved since the year 2000 just before the stock market collapse. A consequence of the booming stock market has been a decline in corporate stock buybacks: why should corporations waste their cash buying back their stocks when "Trump talk" raises prices? This was not totally unlike the "Greenspan Put" in which former Fed-Chair Alan Greenspan basically put a floor under stock market prices.



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