ECB VP Says US Stock Market Valuations Could Be in for a Correction

The vice-president of the European Central Bank (ECB) warned Wednesday that current high valuations in U.S. equities could spark a possible correction in global stock markets.

Speaking to CNBC, Vitor Constancio said: “Certainly the cyclically-adjusted price (to) earnings ratio in the U.S. is well-above historical averages.”

This ratio is an important metric used by traders to gauge the value of stocks. The fact that they are above their usual average means that there’s the risk of a potential overvaluation in the U.S. stock market — which could potentially lead to a reversal.

“We see that some markets are overstretched or at least with indicators that are away above the historical averages,” Constancio told CNBC.

“At the same time we can see that volatility both in the equity and the bond market is very low, which experiences shows in those situations some events may trigger a sudden revision of expectations by investors,” the Portuguese banker said.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza