A record number of investors think this market is overvalued

Professional investors are starting to worry that stock prices are getting out of hand compared with where they should be. Valuation has been a key concern of late for market participants in a bull market that just passed its eighth anniversary. The S&P 500 now trades at 18.3 times forward earnings — the 12-month period ahead — which marks the highest level since the market turned around after the financial crisis. In the latest Bank of America Merrill Lynch fund manager survey, a net 34 percent of respondents find that equities are overvalued. That’s the highest level in the history of the survey going back 17 years. On top of that, a net 81 percent believe that the U.S. is the “most overvalued region” compared with other areas of the world. “Investor positioning argues for a risk rally pause in March/April, with allocation to equities at a two-year high and bond allocation at a three-year low,” Michael Hartnett, BofAML’s chief investment strategist, said in a statement issued the same day that major averages slid amid a sharp sell-off in bank stocks. The most recent threat identified in some corners of the market is that a disparity between Treasury yields and the S&P 500 dividend yield could threaten stocks. The thinking is that rising government bond yields would divert money away from lower-yielding equities.