Can This Bull Market Continue?
Most definitely. Trump or not.
“Big fear is that the honeymoon is over even before the wedding night,” says Interactive Investor’s Lee Wild in a note. “But despite some selling, no one wants to call this rally over prematurely, and indexes remain near record highs. Even the pros don’t know which way this will go, near-term at least.”
At least, that appears to be the case at the initial glance.
Yet, not all is well in the land of bull. Most important, today's valuation levels are a bit out of sync with reality. I continue to bring this chart up because it is the easiest way to show how out of sync with reality today's valuation levels are.
If we adjust for 2000 distortions (lack of earnings), today's valuation are at the second highest level in history. Right behind 1929 top of 29.55.
For the bull market to continue here, two things must happen. First, earnings must accelerate in order to bring today's P/E ratio down. Second, inflationary pressures must accelerate while imbalances shrink.
The market believes, at least for the time being, that Mr. Trump can turn the US Economy around and surge corporate earnings. Perhaps he can, but I am not a believer. It would take a lot of time and effort to do just that.
With the stock market pricing in outright perfection, I would suggest it would be stretch to suggest this bull market will continue. If anything, the stock market is positioned for a massive drop.
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