Value investors are anticipating for undervalued stocks and profitable bonds every day. Simply put, they look up to stocks that trade at a price that does not exceed the intrinsic value. This dilemma provokes the need to determine if the stock and bond market is undervalued or overvalued for the investor to make proper decisions on them (Zhang, Liu, & Zhang, 2017) . This paper discusses a number of ways of approaching aspects such as P/E ratio, Shiller P/E, interest rates, and examining market cap to GDP.
Price/ earnings (P/E) ratio is instrumental in determining the value of the overall stock and bonds. The P/E ratio has ranged between 7 and 22 since 1880 to date (D'Mello, Gruskin, & Kulchanja, 2018) . The current ratio in 2019 is around 18, which reflect that ratio is on the higher side of the range (Zhang et al., 2017). Consequently, the general market is certainly opposed to being undervalued. Therefore, the idea is to invest in bonds when the market price is lower, as the bond often has a higher value. On the other hand, higher prices constitute an undervaluation of bonds, which is a trying moment for investor.
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Shiller P/E is also a useful metric to examine whether bonds and stocks are undervalued or overvalued. Shiller P/E is a concept that considers the average of inflation-adjusted earnings for the past decade. The only time the graph of the Shiller P/E ratio has been more than the current time is the period before the Great Depression began in 1999. The same tide was experienced in 2007 prior to the financial crisis that affected the markets (Zhang et al., 2017) . Based on those facts, the general market today is almost at the peak.
Interest rates are significant since they indicate the return investors receive on bonds. Bonds are theoretically determined as the safest way to put one’s money as the government affirms the returns without delay (D'Mello et al., 2018) . If bonds profit more than stocks, investments will be more on the bonds instead of the unreliable stocks, thus, reducing the demand for stocks that unavoidably amounts to undervaluation of stock prices (Zhang et al., 2017) . Presently, the interest rates are considerably low so that the economy can be stimulated. Therefore, stock prices have risen higher. Stocks are valued expensively today than they were before. Lower interest rates connote increased P/E ratios.
Another metric that is significant to determine whether stock and bond are undervalued or overvalued is considering market cap to GDP. That is, comparing the Gross Domestic Product (GDP) with the market cap of the overall stock market. A higher market cap than GDP indicates an overvaluation of the stock market and vice versa. The market cap is always beyond the GDP at a time when a financial crisis is imminent (Zhang et al., 2017) . An overvaluation of the general market in relation to the GDP is not a situation better for the investors.
In conclusion, the metrics discussed above clearly show how the stock and bond market have been presently overvalued. However, this does not imply that people should fear to invest in current times. Whereas the overall market could be overvalued currently, it is a possibility that individual stocks and bonds are undervalued and consequently becoming profitable. The market could even insist to rise in spite of the present overvaluation. Evaluating companies on the grounds of their intrinsic value is the best manner to avoid several aspects like macroeconomic or political issues and determine the center point of an organization’s real value. After which, an investor will have vivid information to avoid overvalued stock and bonds or what any stock is worth .
References
D'Mello, R., Gruskin, M., & Kulchania, M. (2018). Shareholders valuation of long-term debt and decline in firms' leverage ratio. Journal of Corporate Finance , 48 , 352-374. Zhang, Z., Liu, W., & Zhang, X. (2017). Valuation of convertible bond under uncertain mean- reverting stock model. Journal of Ambient Intelligence and Humanized Computing , 8 (5), 641-650.
