Valuations, or the prices of stocks compared to the companies’ underlying earnings, have passed levels last reached in 2007, or the top of the previous bull market. Bull markets tend to expire when trailing 12-month price-to-earnings ratios get into 17x or 18x territory.
They’re approaching 18x today. What is really troubling is that much of the buying is being fueled by very cheap debt.
Record margin debt is the canary in the coal mine, and when it goes silent say your prayers. Here’s the chart: