Wall Street hit record highs for the 44th time this year overnight on Thursday and that has some investors asking whether the S&P500's stellar run over the last five years is making the market look expensive.
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We've taken a look at a number of different metrics to check just how expensive the S&P 500 really is.
Forward P/E
Over the last five years, the S&P500 has surged close to 90 per cent, however chief investment officer of US-based funds manager Neuberger Berman Matt Rubin reckons that from a valuation perspective, the market isn't expensive.
"Last year, almost the entire growth in the S&P came from multiple expansion, this year it has been much more earnings driven and we think it has the potential to go higher based on the growth of the earnings," Mr Rubin said.
Forward price-to-earnings ratio on the S&P500 is 17.08x, just a few clicks above the long-term average of 16.73.
"Earnings are good, they continue to grow. Valuation, right now, going forward is going to be much more a function of the earnings power than the multiple," Mr Rubin said.
Price-to-book
Looking at the S&P500 from a price-to-book perspective - which measures the value of all companies in the index in relation to their book value - valuations have been increasing almost uninterrupted since late 2011. However, the current level, 2.78, which is the highest level in the last five years, is still below the long-term average of 2.85.
Dividend yield
The current 12-month dividend yield of 1.9 suggests that there is some room to move, which should be positive for investors. With a long-term average of 2.97, an improvement in earnings should lead to some better dividends.
"I don't think the US is cheap. The fact that it isn't expensive reflects the strong earnings growth we've seen since 2009," AMP Capital head of dynamic asset allocation Nader Naeimi said.
"If you look at US GDP numbers, earnings growth has been a lot stronger than GDP."
Shiller P/E
Mr Naeimi said that while he thought the S&P500 was fully valued, the Shiller P/E measure did make it look expensive over the long-term. Shiller P/E is based on average inflation-adjusted earnings over the last 10 years.
The long-term average Shiller P/E for the S&P500 is around 17x, however it is currently sitting at 26.5x.
"If you put a flat line through the history, then yes it's above it, but I'd argue that P/Es now can be higher than they were 100 years ago," Mr Naeimi said.
"You have a lot more liquid market and more diversification, I don't think it's reasonable to put a flat line, or average, and say at 27 the Shiller P/E is above its 15x average and the market is expensive."
Earnings yield v bond yield
Neuberger Berman's Mr Rubin reckons that from an earnings yield perspective, the S&P500 looks quite attractive.
When compared against the US government 10-year bond, the yield offered in US equities is much greater.
"Interest rates look like they'll go higher, but it's they're going to go higher gradually and it's going to take a while for the Fed to move," Mr Rubin said.
AMP's Naeimi said that it would be hard to see P/E expansion driving US equities any further, but there is potential for earnings to lift the market.
"We've had very strong margin expansion in the US. It's hard to see margin expansion from here, but the good news is the recovery in margins is now being followed by sales growth," Mr Naeimi said.
"So if sales growth is strong enough to compensate for the pickup in capital expenditure, wages and potentially interest rates, then earnings can continue to chug along."
