Overpriced Stocks Due For A Big Drop Or A "Lost Decade" | Chance Finucane

Stocks prices appear to be promising returns that their actual profit growth simply can't meet

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Stock market valuations remain high by nearly every valuation metric.

And what concerns today's guest is that the earnings estimates being used to price stocks today seem far above what the free cash flows of the underlying companies will be able to deliver.

In short, stocks prices appear to be promising returns that their actual profit growth simply can't meet.

We'll discuss this concerning disconnect today with Chance Finucane, Chief Investment Office at Oxbow Advisors. We'll also address the other big trends factoring into his portfolio allocation decisions right now.

Oxbow Advisors is a financial advisory firm founded by Ted Oakley that specializes in the needs of high net worth clients.

For Chance’s current market outlook, click here or on the video below:

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Adam’s Notes: Chance Finucane (recorded 2.24.25)

EXECUTIVE SUMMARY:

• Stock market valuations are historically high, with prices significantly outpacing the growth in free cash flows. The free cash flow yield for the market has declined from 5% (historically fair value) to below 4%, indicating that current stock prices may be overly optimistic. Oxbow Advisors estimates that a fair market valuation would require the S&P 500 to be closer to 5,000 rather than its current level of 6,000. Much of the overvaluation is attributed to multiple expansion, particularly in AI and large-cap tech stocks, which are priced as if high growth is guaranteed.

• Inflation, which bottomed in September, has been creeping back up, with some short-term fluctuations. Oxbow Advisors expects inflation to remain elevated, limiting the Federal Reserve’s ability to cut interest rates aggressively. This could result in prolonged high borrowing costs and a constrained liquidity environment. Additionally, inflation is not just a U.S. issue, countries like Japan and Europe are experiencing rising inflation, which could have broader implications for global interest rates and financial markets.

• In response to elevated valuations and macro uncertainties, Oxbow Advisors is taking a cautious investment approach. They are maintaining a