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Market Bubble? Not Based on Valuation

NEW YORK ( TheStreet) -- I've written countless columns over the past several months indicating that it's been difficult these days to find many stocks that are downright cheap, at least in my view. That does not necessarily mean, however, that the markets are overvalued, per se. In fact, I'm not yet convinced that we are experiencing bubble-like conditions in the equity markets.

Now, that may seem to be contradictory, but can be explained by my belief that markets are neither cheap nor expensive. The S&P 500 is trading at about 18 times trailing earnings and 15 times forward 12-month estimates, and those numbers do not seem ridiculous to me.

I believe that some investors, however, are nervous because the S&P 500 is up more than 150% since bottoming in March 2009, and are convinced that after such a huge run in 4 1/2 years, the market is due for a correction. But by that logic, you get a much different picture if you consider that the S&P is up just 12% -- and that's not annualized -- since January 2000.

As investors, we have very short memories, and tend to anchor to more recent market events. Yes, the S&P 500 is up 150% in the past 4 1/2 years, but the starting point of that rally, a time marked by fear, grossly underestimated the markets true value, just as the Nasdaq Composite's 5000 mark achieved before the tech bubble burst grossly overestimated its value.

Any worries I have about the broad markets at this point have little to do with valuation. I'm more concerned about the plethora of potential storms and storm clouds on the horizon. We are in the midst of a government shutdown, although it has likely had little effect on most citizens so far. However, along with the looming debt ceiling, it does bring with it some near-term uncertainty, and the markets don't like uncertainty.

Other domestic situations such as the Obamacare rollout add further uncertainty, especially if it continues to affect hiring and full-time employment numbers. There's always the issue of potential tapering by the Federal Reserve, which may already be partially priced in, but we really won't know until it actually starts.
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