Monday 6 March 2017

With no historic metrics to prove bullish case, is stock market in new era?

In an article today titled “The Most Broadly Overvalued Moment in Market History”, John Hussman wrote:

On Wednesday, the consensus of the most reliable equity market valuation measures we identify (those most tightly correlated with actual subsequent S&P 500 total returns in market cycles across history) advanced within 5% of the extreme registered in March 2000. Recall that following that peak, the S&P 500 did indeed lose half of its value, the Nasdaq Composite lost 80% of its value, and the tech-heavy Nasdaq 100 Index lost an oddly precise 83% of its value. With historically reliable valuation measures beyond those of 1929 and lesser peaks, capitalization-weighted measures are essentially tied with the most offensive levels in history. Meanwhile, the valuation of the median component of the S&P 500 is already far beyond the median valuations observed at the peaks of 2000, 2007 and prior market cycles, while our estimate for 10-12 year returns on a conventional 60/30/10 mix of stocks, bonds, and T-bills fell to a record low last week, making this the most broadly overvalued instant in market history.

However, if history does not support the bullish case, one can always ignore history.

Long-time bull Laszlo Birinyi, president of Birinyi Associates, was quoted by the New York Times over the weekend as saying: “My attitude is, the market is likely to continue to do better, though I can’t point to historic metrics to prove my case the way I usually can.”

In other words, it is a new era.

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