Time to be Aggressive?

The U.S. stock market capitalization is now just 65% of GDP, and stocks are trading around 10 times normal earnings. That is, stocks’ earnings yield is 10%. The current dividend yield is 3.6%, higher than the 3.2% on the ten-year Treasury note. On an absolute basis, the last time we saw these prices on the S&P 500 Index was in April 1997. But to find these valuation levels, one would have to go back to the mid-1980s. Yes, the economy is weakening significantly and will be very difficult for quite some time. And stock prices will probably still go lower, perhaps meaningfully so. But stocks are discounting a very difficult economic scenario already, and investors at current levels should do very, very well from here. As Warren Buffett recently wrote, "If you wait for the robins, spring will be over."