If you plan and to hold a your stocks until you die, invest in individual companies or be a trader, this is not useful. Lets get this clear, this is my opinion and most importantly it does not mean a particularly company is over valued it means I believe the market as a whole is overvalued.
- Most basic point it. It has been over 10 years since we have had a real bear market. One is just kinda over due. And it has not like we have had the growth to justify it. The US economy has been slow to come back from 08, in comparison to other crashes. Not to say thats not understandable, 08 was much worse then other crashes, but the stock market has not reflected the lack luster growth.
- Unnaturally low interest rates(and other underperforming assets) driving demand for US stocks. As you all know asset classes compete with each other. People only have so much money to invest and if one class is giving good returns it draws capital to itself and away from other classes. US bonds have had low interest rates historically speaking. When 10 years are below 3%( which seems normal now) less investors are willing to buy, driving an increase demand for stocks. Furthermore, other stock markets have not been preforming very well. The ftse has only return 15% in the last 5 years. Shanghai comp is at 35% in 5 years.(not the best indicated as they had a MASSIVE bubble.) Dax and Nikkei have done better at 51 and 65% over 5 years. (S&P returned ~68% which means Nikkei outperformed S&P as yen is deflating while USD is inflating) Gold has not moved almost at all in 5 years. The only large asset class I see that has done pretty well is real estate, in certain areas( in some cities I think it has entered a bubble.) From what it seems to me most people are heavily into US equities as they are returning the best.
- Cape ratio or the Cyclicly adjusted p/e ratio is a good way at judging what the average p/e on a stock is (in S&P).
As you can see we are at a pretty high evaluation. Your really not getting the bang for your buck currently. This could be explained by amazon using a different model of never earning money and keeping a very high P/E. (I don’t think NFLX is the same, I think they are just overvalued) However, I don’t think that alone would change it a lot.
4) Things I do not know but would like to.
How the massive popularity ETF changes this.
How stock buybacks changes this. (Is this even new? I have heard more and more companies doing this but I don’t know if its a new thing or just something that got popular again.)
In conclusion: Could the market go to a higher level from here? Yes. However, I think we have a greater chance of going into a bear market from this point.
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