The U.S. stock market has been rising for more than five years; the S&P 500 has delivered a total return of 217% since early March, 2009. Today the S&P 500 reached a new all-time high of 1920. You can hear the nail-biting, especially since Q1/14 real GDP notched negative with today's revision. Are we near the end of one of history's great stock market rallies? I don't think so.
These two charts help put things in perspective. The big picture is that the natural tendency of stock prices is to rise, which they have been doing for a very long time; that should hold as long as the economy is able to expand and inflation avoids negative territory. Economic growth is almost assured given ongoing growth in the population and in the number of jobs, and the Fed has taken extraordinary measures against an extended outbreak of deflation. As the top chart shows, stocks tend to rise, on average, about 6-7% per year in nominal terms (plus dividends). As the second chart shows, stock prices tend to rise about 3% per year in real terms (plus dividends). Prices are in the upper half of their long-term trends, but it's not what you might call "scary-overvalued." There is still plenty of room on the upside before historical precedents are violated.
This is also a plug for "buy and hold" investing. It's near-impossible to call the highs and lows with enough exactitude to make a fortune. But's it's easy to buy stocks when no one wants them—as was the case from late 2008 to early 2009—and hold on for the long haul.
The message of the first two charts—that stocks are a little above their long-term average growth path—is confirmed by the chart above. The 12-mo. trailing PE ratio (according to Bloomberg) of the S&P 500 is now 17.6, which is about 6% above its 55-year average of 16.6. By this measure, stocks are somewhat "overvalued," but not be a significant amount. Moreover, if you consider that Treasury yields are still historically low (the PE ratio of the 10-yr Treasury, which currently yields 2.5%, is 40), it's not unreasonable at all for PE multiples on equities to be above average. Show me an investor who prefers 10-yr Treasuries to equities today, and I'll show you an investor who expects corporate profits to plunge. Absent a plunge in profits, equities could handily outperform Treasuries, even on a risk-adjusted basis.