Major U.S. stock indexes fell about 20%, after achieving all-time highs in September 2018. A 20% fall is the technical definition of a bear market. Still, some analysts are questioning whether a bear market is actually in play or whether the drop was caused by algorithmic trading programs that tend to copy each other and amplify moves up or down.

Whether this is a bear market or a computer-driven drawdown, many analysts point to the 20% decline as proof that stock prices have returned to more normal valuations and there are bargains galore for investors willing to jump into the market at these levels.

This article takes a different view. The author provides detailed data and analysis to explain why stocks are still overvalued even after the recent decline, and why a bear market still has far to run. The article shows that the price-sales ratio was lower in 18 of 19 market tops since the mid-1950s.

The article also points out how the Shiller CAPE ratio was lower than the current ratio in 32 of 36 bull market highs since 1900. A number of other fundamental ratios are included in the analysis. Just because stocks are overvalued historically does not mean they cannot remain overvalued or enter riskier territory for years to come.

Yet that is a long-shot bet. The weight of historic evidence leans in favor of a bear market indicating a recession, even if valuations still rally on certain trading days. Investors can’t say they weren’t warned.

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