Market Valuation

Another Big Picture post about stock market valuations has this quote:

As to valuations: Its hard to really say that stocks are cheap here. At best, I believe we can argue that -- assuming that historically high earnings do not fade -- that stocks are not terribly expensive. But that is very different than saying they are cheap.

... and some accompanying graphics. Stocks are not wildly overvalued at this point -- that bubble happened 8 years ago -- but they are also not pricing in any important downturn in either the economy or corporate profits. If we were to see a major recession along with a return of corporate profits to a normal historical level as a percentage of GDP, the market could get much much cheaper.