Want to start an argument on Wall Street? Of course, that's not hard considering all the testosterone on the Street. But you can set off a bitter battle by asking whether the stock market is overvalued or undervalued. There are passionate advocates on both sides of the debate.

Take the common valuation technique that compares the forward earnings yield on the Standard & Poor's 500 to the yield on the 10-year Treasury bond. We'll skip the math, but by this metric the stock market is undervalued by about a third. But other money mavens consider this calculation little more than math drivel. They argue that the price-to-earnings ratio of the S&P 500 needs to come down by about half before settling back to its historic average.

It's enough to make anyone throw up their hands and declare oneself a market cynic, memorably defined by Oscar Wilde as someone who "knows the price of everything and the value of nothing."

Hold on. Just as in fiction and documentaries, taking a narrative to its extreme makes for a compelling finance story. But the tale of the stock market may be a subdued saga with only a somewhat upbeat plotline. That's what Steven Leuthold, a Wall Street veteran and legendary market historian, recently concluded when he calculated that equities are no longer overvalued. That's good news. But saying that the market is reasonably priced is hardly an unforgettable thriller.

Leuthold is well worth heeding. He's well respected on Wall Street for his detailed studies on market valuations. He came to his conclusion after carefully studying median valuation levels during low-inflation periods all the way back to 1926. What's more, the three-decades-plus investor was also a vocal on-the-record bear during the height of the '90s stock market boom—including during his visits to Sound Money.

Yes, these are uneasy times. The economy is weak, even though a double-dip recession is unlikely. The painful first anniversary of 9/11 is a sobering reminder that the war on terror is far from over, if ever. Uncertainty over whether the Administration intends to invade Iraq has driven oil prices up sharply. A lot can go wrong.

But investors should resist the urge to flee stocks. At least now, after the financial carnage from the bear market, the odds are that investors will earn some compensation for taking on the risk of owning equities.

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