Federal Reserve Chair Jerome Powell’s comments on high US equity valuations caused a dip in the S&P 500 this week. Valuations are indeed high, with 19 out of 20 metrics showing historical expensiveness, including the Shiller CAPE ratio hitting levels not seen since the dot-com bubble. However, strong earnings could mitigate potential investor pain.

While high valuations can signal poor future returns, the Shiller CAPE ratio may not be a perfect predictor due to its slow reflection of current conditions. Other indicators like the forward PE, price-to-book ratio, and the Warren Buffett indicator also show froth in the market. Yet, if earnings improve relative to prices, valuations can adjust.

Bank of America’s top US equity strategist, Savita Subramanian, suggests that today’s high multiples may be the new normal, highlighting improvements in the S&P 500’s quality and lower debt to equity ratios. Despite echoes of past crashes, Subramanian notes that the market has changed, and earnings volatility has decreased, potentially supporting current valuations.

Read more at Yahoo Finance: 4 charts show Fed chief Powell is spot on about stocks being ‘fairly highly valued’