Salient to Investors:
Barry Ritholtz writes:
- Rarely have conditions for market gains been so promising at a time when investor psychology has been so negative.
- Only 7% in a Gallup poll were aware of the S&P 500’s 30% increase in 2013, while more than 50% would put new cash into bank accounts or CDs rather than equities.
- Stephen Suttmeier at Bank of America Merrill Lynch said the present rally is the 5th longest since 1928, the S&P 500 Index has not closed below its 200-day moving average on a daily basis for 21 months versus the record of 30 months between 11/25/1953 and 5/23/1956. Suttmeier said the last streak of 21 months was between 7/27/1950 and 4/30/1952 and coincided with the S&P 500 secular bull market breakout in 1950.
- The deluge of Internet warnings, along with post-crash traumatic stress syndrome, has investors obsessively fearing the next market meltdown.
- Shiller’s CAPE at 26.3 versus its average of 16.6 and Tobin’s Q ratio at 1.17 versus its average of 0.68 both show markets to be significantly overvalued, while most other metrics show them to be fully valued, or slightly rich.
- We can slowly grow our way out of high CAPE valuations. Salil Mehta at Georgetown University said the CAPE is not a tool for predicting crash timings, though it would take a high, single-digit number of years where prices underperform earnings, in order to drive it back to its normal long-term average of 15-16.
Read the full article at http://www.bloombergview.com/articles/2014-08-21/the-stock-market-s-missing-ingredient
Click here to receive free and immediate email alerts of the latest forecasts.