The recent bullish sentiment is driven by forecasts for earnings growth of 10% next year. A Forbes article says that may have to be revised down.
10% Earnings growth would require the 5% revenue growth forecast PLUS net margin expansion. However net margins at 11% are already above historic averages (after Trump’s tax boost in 2018) and a fall back to 10% averages looks more likely.
Any downward revision would likely have a significant impact on sentiments and valuations.
The last time the stock market valuations traded at this level (with a forward PE of 18.1) was in January 2018 when there was a sharp correction. On Friday, CNN’s Fear and Greed Indexwas at 91 out of 100. At these levels, it seems likely that the only way is down.
Thats not the end of the world, and nobody can be sure when the correction will come, but investors with shorter investing horizons would be wise to consider a partial pivot into cash or gold.
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This is not a recommendation to buy or sell. Stocks are not suitable for everyone. Please do your own research.