With the S&P 500 hitting new highs, the valuation debate is getting more intense. Some say the market is rich, pointing to lofty levels of cyclically adjusted price-earnings ratios. Others say it is fairly valued, sighting its relative cheapness to the bond market. Few will argue the equity market is complacent. Sentiment indicators, including the put/call ratio, stock price breadth, the flow of funds, and confidence surveys suggest investors are still willing to take risk at today’s price levels. The most-watched indicator of complacency, though, is the VIX Index.
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