Bull or bear? In 2020, we witnessed the end of the longest bull rally in US history, the shortest bear market on record and a remarkable rally that propelled stock indices to fresh alltime record-high levels — all in the space of a year. Every investor, analyst, fund manager and financial media is now preoccupied with one fundamental question: How much longer can this new bull market continue? Unsurprisingly, there are passionate arguments from both sides of the divide.

The bears would point out that the high drama surrounding the never-before-seen short squeeze on hedge funds instigated by retail investors — banding over the WallStreetBets forum on social media platform Reddit — must surely be a sign of irrational exuberance that would herald an imminent market collapse.

And the strongest bear argument to support this is valuations. Current market valuations by nearly all yardsticks — including price-to-earnings (cyclically adjusted or otherwise, trailing and forward), priceto-book, EV-to-Ebitda, price-to-sales and Warren Buffett’s favourite measure, market cap-to-GDP — are near or above historical highs (see Table 1).

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