Does the market still represent reasonable value or is it overpriced?

For most investors, just the fact that the Australian and US markets are at record levels lends credence to the belief that the markets are close to fully valued. Looking at the markets in terms of average PERs based on forecast earnings for leading industrial stocks also supports this view. So, for safety's sake we would advocate keeping some money on the sidelines. But the real question we should be asking is whether the forecast earning levels for companies are achievable and what effect does the low interest rate environment have on the market? With the economy surviving last year's turmoil better that anyone expected, earnings forecasts do look achievable. But the real clue comes from looking at the relationship between the interest rate level as measured by the bond yields and the dividend yields. On this basis the market looks a quite comfortable place to invest and still offers reasonable value for the longer term.