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Joined Nov 11, 2007
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Why Stocks Look Too Pricey

By BEN LEVISOHN

After a six-month rally, U.S. stocks are getting pricier. Experts say investors should exercise caution.

The Standard & Poor’s 500-stock index gained 12% during the first three months of 2012, the best start to the year since 1998. After this week’s 0.7% drop, the benchmark index has run up a stunning 27% since Oct. 3. Despite the surge, some strategists argue that stocks are still cheap, based on comparisons with bonds.

More traditional measures, however, suggest stocks at best are fairly priced, and at worst are worryingly expensive. With corporate earnings growth slowing in the U.S. and fresh fears of a European meltdown, some strategists say stocks are due for a rough stretch.

“There’s a lot of uncertainty out there, so the S&P shouldn’t be trading at a premium,” says Stuart Kaiser, an equity strategist at Goldman Sachs Group GSĀ -1.63% . “The idea that equities are cheap is not quite right when all factors are considered.”

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