In his recent interview with CNBC, Aswath Damodaran discusses why he believes the current market is overvalued by about 9/10 percent. He attributes this to a shift in the expectations, where previous predictions of a recession and adverse economic conditions turned out to be the opposite. He contends that positive factors are already priced in, and the real danger lies in potential unexpected surprises, especially in an election year. Here’s an excerpt from the interview:
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Damodaran: I think right now the market is overvalued. I think in my estimate is about 9/10 percent.
And part of the reason I think is the expectations game has turned against the market.
You remember the start of last year a recession was almost guaranteed, rates were going to go up, inflation was out of control.
And every strategist that you had essentially said this is going to be a terrible year for stocks.
Turned out to be the exact opposite. Everything turned out to work in the opposite direction.
My fear is that we’ve moved too much in the other direction. Now people assume there’s no recession, inflation’s under control, then everything is going to be ok.
So I think this year good news is going to require a lot more than it did last year and that to me is why I think stocks are in a dangerous place right now.
Host: What if in fact inflation is coming down at a pretty good clip? What if the economy is holding up pretty well then that would obviously throw the equation into a different answer?
Damodaran: That’s already priced in, and I think that’s the promise, we’re pricing in the good stuff.
And I think the worry now is there might be surprises, in fact there will be surprises. Go back to 2008, every single year we’ve had some big surprise that nobody saw coming.
And I’m sure there will be… it’s an election year, I can’t see this year going by without significant big surprises. So to me that’s the danger you face investing in stocks right now.
You can watch the entire discussion here:
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Article by The Acquirer’s Multiple
