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Jun 14, 2021

Record number of CFOs believe US equity market is overvalued

Debt remains a more attractive financing option than equity, say respondents

As the S&P 500 continues to mark new highs, finance chiefs believe valuations are looking increasingly stretched, according to new research. A record 86 percent of finance chiefs polled by Deloitte for its Q2 CFO Signals report say they believe US stocks are overvalued, a rise from 83 percent last quarter.

The respondents, totaling 138 CFOs based in the US, Canada and Mexico, completed the Q2 survey by May 14, when the S&P 500 closed at 4,174 points. Since then, the benchmark index has continued to climb and finished last week at a new record high of 4,247.

Overall, the Deloitte survey painted a rosy picture with the proportion of CFOs rating the North American economy as good or very good rising to 75 percent, up from 29 percent in the first quarter. In addition, a net 70 percent of respondents say they feel growing optimism about their company’s outlook.

Turning to risks, the biggest external worries for finance chiefs in the research are economic stability and rising prices. ‘The perceptions of US equities being overvalued is likely a factor in the concerns many CFOs raised over economic stability and the potential for inflation,’ write the report authors.

In the research, CFOs also commented on debt and equity financing. Both are viewed as attractive, but ‘ongoing low interest rates’ give debt more appeal out of the two. Of the respondents, 92 percent say they find debt financing as an attractive option, compared to 56 percent who said the same about equity financing.