Dow 30K, Angry Janet Yellen & Insane Valuations Levels

Posted by on March 4, 2017 3:37 am
Categories: Uncategorized

Oh, the never ending Bull Vs. Bear saga. Let's very quickly review this week's activity as we attempt to decipher what happens next.

As I have so clearly illustrated on this blog throughout the week, the market is severely overbought by almost any traditional measure. Yet, that doesn't prevent the bulls from making outlandish claims. For instance....

Dow 30,000 — this is what could rocket stocks to the moon

He concludes that if markets follow the pattern of 1999, they could rise nearly another 60%. That would bring the Dow to over 30,000, and the S&P 500 above 3,500. Even if markets “just” went to 1929 levels, the Dow would top 24,000 and the S&P 500 move past 2,700, the Commonwealth financial chief says. “These are the next limits, and the only real technical ones, for the markets. We could have quite a bit of upside left to go,” McMillan says.

The case for markets going higher is fairly straight forward. President Trump's tax plan passes with flying colors, we get more stimulus, infrastructure spending and pigs learn how to fly. In reality, it is much more complicated than that. As outlined here. MUST WATCH: Why Trump’s Tax Plan Is Dead On Arrival

And that might be the least of market's trouble. It appears the establishment is so furious with President Trump that they might attempt to collapse capital markets and the US Economy on his head.

Yellen Hints at More Aggressive Rate Path Upon Locking in March

Federal Reserve Chair Janet Yellen left little doubt on Friday that the central bank will raise interest rates this month. More importantly, she dropped hints that it might end up having to increase them this year more than planned.

We talked about that throughout the week as well. You can learn more about it here...  Yellen Speaks – The Real Reason Behind The Upcoming Rate Hike

Here is the best part. Did you know that this week's valuation levels have briefly surpassed 1929 top levels on Wednesday? I kid you not. Shiller's Adjusted S&P Ratio topped out in the summer of 1929 at 29.55. On Wednesday of this week the same ratio spiked all the way up to 29.89

So, if we adjust for 1999-2000 P/E distortions (lack of tech earnings), it can be argued that we are looking at the most expensive stock market in the "History of Humanity". Which brings us to this 

Stop! This is NOT like the dot-com bubble... it’s much worse, according to this chart

“Even though current valuation measures are not as extreme as in 1999, today’s economic underpinnings are not as robust as they were then,” he wrote. “Such perspective allows for a unique quantification, a comparison of valuations and economic activity, to show that today’s P/E ratio might be more overvalued than those observed in 1999.”

What are we to make of these head spinning market projections? 

Well, I think it is incredibly important to realize that the stock market is overbought and incredibly/historically overvalued here. That might not be a problem if earnings were to surge higher. Bullish investors believe in exactly that. Yet, as our analysis/links above have shown, President Trump's plan is already in some serious trouble. To say the least.

If so and if earnings continue their deceleration process, stocks are likely to crater. Especially if the "establishment" is out to get President Trump with Janet Yellen's assistance. Invest accordingly. 

If you would like to find out exactly what happens next based on our Timing and Mathematical work, please Click Here.