It might not feel like it, but stocks are at their most expensive levels since 2005. Still, many investors do not feel like they should be worried.

The P/E ratio of the S&P 500,  which compares the price of the S&P 500 with the projections of analysts for the companies of the index in the next 12 months, has risen to 16.6 according to FactSet. That is not only historically high, it is also the highest it has been since March 2005. What is most remarkable is that stocks have become more expensive in terms of valuation even now that the market has been moving relatively sideways. The S&P 500 was even showing a modest loss at the end of last week.

What is the cause of all of this? Company forecasts have been adjusted strongly to the downside. Analysts have lowered their expectations for the companies from the S&P 500 by 3 dollars or 2.2 percent. It is not so surprising that the energy sector plays a big part in this. Due to the strong price drop of oil in 2014, analysts have lowered their expectations for profit per share for the energy sector by 27 percent.

Energy Stocks

Because the stock prices of energy companies have not really gone down, the average P/E for the sector has increased to 22.4. According to senior FactSet analyst, John Butters, it is the highest ratio for any sector of the S&P 500.

However, it is important to note that there is a reason why these valuations have gone up: the interest rates on government bonds. Interest rates have gone down to their lowest levels in years, of course, which is a great environment for stocks.