The alternative of a riskless investment is less and less appealing and prices in the stock exchanges are higher and higher because of the existence in the West of a low (and not necessarily minimum) interest scenario that will be extended over time within a context of moderate growth, contained prices and high indebtedness.
The reason is the lack of real return in that alternative. For those who love the price-earnings ratio (PER), let’s remember that S&P 500’s current PER is 16 times, which is on a par with the historical average of the last 35 years (also 16 times).
However, such measure results from the combination of a 12.5 times PER in the years between 1978 and 1995 (9% yield on average), and 22 times between 1996 and 2013 (4.3% yield on average). Currently, the 10-year bond yield does not meet 3% and (even though it will eventually increase) we don’t expect it exceeding 4%.
Do not be scared by maximum levels!