Are stocks overvalued?

On September 3, 2020; Wall Street had its worst day in months. The S&P 500 dropped 3.5% on this day, and tech stocks were the culprits. Despite continued high unemployment and a weak outlook for corporate profits, the stock market is continuing to be overvalued. With the US economy in a recession, one would think that stocks should not be so high. Investors have been optimistic about tech companies, including Amazon; Apple; Microsoft; Facebook; and Alphabet. Amazon was up more than 90 percent this year, Apple more than 80 percent, Microsoft and Facebook nearly 50 percent, and Alphabet nearly 30 percent. Furthermore, tech stocks have fueled the recovery of financial markets since late March 2020. Since March 2020, the S&P 500 is up more than 50%. At the same time, many analysts are warning that the stock market’s gains are detached from reality. The outlook for corporate profits and economic growth is far from positive. Lawmakers were not able to reach an agreement on a relief package. In addition, corporate profits for S&P 500 companies are expected to be down nearly 20 percent this year. Also, the pandemic-related shutdowns this year have created persistent problems for the labor market. The unemployment rate is 8.4%, as this news was reported on September 4, 2020. The S&P 500 is up nearly 7 percent for the year, which is some good news for investors. On the other hand, the election could produce a steep drop for the stock market depending on the result. Next, the Nasdaq reached an all-time high on September 2, 2020. Apple's market cap is above $2 trillion, and Amazon has the 2nd highest market cap at $1.65 trillion. Microsoft and Alphabet are the other two tech bellwethers, that have market caps above $1 trillion. If stocks continue on an upward trend, Facebook could be the next stock to reach $1 trillion. The Dow Jones industrial average is down close to 1.5% for YTD. In this penultimate paragraph, let's discuss the state of the economy during the global coronavirus pandemic. First, the pace of the economic recovery has decelerated. The U.S. is regaining jobs at a slower pace several months after the economy reopened. More people are spending money at fashion malls, and restaurants due to an uptick in some consumer spending numbers. Yet, the coronavirus has not gone away. Airports around the country are mostly empty, and hotel rooms are largely unoccupied. In closing, stocks are overvalued. Life is far from normal. Will the coronavirus pandemic lead the economy into a deeper recession in 2021, and beyond? Hopefully, an end to Trumpism may change the state of the economy in a positive way. Let's hope for a Biden victory on election day, to result in a better economic picture in the USA.