Experts: Stocks Are Not Overvalued Despite Market Records

Global stock markets are defying geopolitical tensions, high oil prices, and rising bond yields to reach record highs. This surge is partly fueled by a "fear of missing out" among institutional investors, who are more concerned about being left behind in a rising market than facing a downturn, according to Steve Sosnick of Interactive Brokers.

However, experts like Tamás Menyhárt, fund manager at Erste Asset Management, argue that the market remains rational. He points to a nearly 10% decrease in the price-to-earnings (P/E) ratios for U.S. stocks since the beginning of the year, bringing them to a five-year average. This valuation is supported by substantial corporate earnings growth, with first-quarter profits up nearly 30% year-on-year and second-quarter profits soaring by 50%.

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There are many institutional investors who are more afraid of missing a rally than of a falling market.

Furthermore, Menyhárt notes that when considering the growth-adjusted P/E ratio, or PEG ratio, stock prices are currently at their cheapest levels since the 1990s. This suggests that the rally is not solely driven by speculation but is underpinned by strong fundamental performance.

An additional positive sign is the broadening of the recent rally. Money withdrawn from semiconductor stocks has quickly found its way into other sectors, indicating a more diversified and potentially sustainable market expansion beyond the initial AI-driven boom.

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The market is very much rational.