The Motley Fool

Will shares always be this expensive?

The ASX200 (ASX: XJO) is at an all-time high. The S&P 500 is almost at an all-time high. Will shares always be this expensive?

I don’t necessarily mean that hitting records is expensive. Compared to historical average valuations, the ASX and international share markets are looking pretty buoyant.

When shares rise and are at high prices there are normally only two answers. Either earnings meet (or beat) the expectations, or the expectations become lower thus sending prices lower.

But interest rates are making it harder to say what’s going to happen next. If interest rates stay at this low level for the foreseeable future then arguably shares are actually still good value. Why put your money in cash when you can earn high-ish single digit returns from shares?

Low interest rates are why the share prices of non-bank dividend shares like Wesfarmers Ltd (ASX: WES), Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD) are so high.

Low interest rates are why growth shares such as WiseTech Global Ltd (ASX: WTC), Pro Medicus Limited (ASX: PME) and Xero Limited (ASX: XRO) are priced so highly.

How long will it be like this? Who knows, but most fund managers seem to be all-in on shares right now.

However, the trade war seems to have reached a ceasefire. In theory this could, and perhaps should, lead to rising interest rates. But central banks seem to be directly or inadvertently doing the bidding of politicians, particularly in the US, so I can’t see many rate rises this year.

Some contrarian investors also think that Europe may see the end of negative interest rates over the next 12 to 18 months. Some European banks are already charging high net worth individuals to hold cash in the bank, which may cause officials there to act.

Foolish takeaway

It’s not easy to find investments that make a lot of sense in this market. I’ve written quite a lot recently about my preference for shares like Webjet Limited (ASX: WEB), Pushpay Holdings Ltd (ASX: PPH) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). There are opportunities out there, you just need to find them.

Our investment team have already done some of the hard work for you and identified these top stocks as the best candidates for your portfolio.

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Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Pro Medicus Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited, Transurban Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Wesfarmers Limited, WiseTech Global, and Xero. The Motley Fool Australia has recommended Pro Medicus Ltd., PUSHPAY FPO NZX, and Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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