Stock market near new record highs
- Thread starter bdroc
- Start date
I think the historical PE ratio is around 15. In recent decades that has increased to 19.
The PE ratio of the NASDAQ in particular will rise in times of great innovation and government stimulation (not just our government BTW). However, there are many companies loaded with cash that are not the NASDAQ with low PE ratios. As always, we have interesting time of transition ahead of us.
Finally, a topic that I find interesting so you know that they will delete or move it. This site has been insanely boring for weeks. I simply lost interest. When they delete this thread, I'll probably disappear again only to check in on rare occasions to see if anything on the site is actually of interest.
As for the stock market, the DOW is almost back to where it was 2 months ago. With cumulative inflation at 24% and the DOW at a 29% return since JAN2021, that yields an annualized inflation-adjusted ROI of 1.43%, about the same as a savings account. The 4 years previous to this yielded an annualized inflation-adjusted ROI of 12.03%.
The S&P has done much better since JAN2021. It has a 46% return. So, the annualized inflation-adjusted ROI is 6.28%. This is only about 30% percent below the historical average annualized inflation-adjusted ROI of the S&P. The 4 years previous to this yielded an annualized inflation-adjusted ROI of 14.78% which is about 64% better than the historical annualized inflation-adjusted ROI for the S&P.
The NASDAQ has returned 35.8% since JAN2021. The annualized inflation-adjusted ROI is therefore 3.37%. As you know, the 4 years previous to this yielded an inflation-adjusted annualized NASDAQ record for a 4-year period of 32.53%!
The Russell 2k is the index that represents the small caps or small companies. These companies have been hit very hard since JAN2021 with actually a slight negative return. Their annualized inflation-adjusted return has been -6.86%.
As for the stock market, the DOW is almost back to where it was 2 months ago. With cumulative inflation at 24% and the DOW at a 29% return since JAN2021, that yields an annualized inflation-adjusted ROI of 1.43%, about the same as a savings account. The 4 years previous to this yielded an annualized inflation-adjusted ROI of 12.03%.
The S&P has done much better since JAN2021. It has a 46% return. So, the annualized inflation-adjusted ROI is 6.28%. This is only about 30% percent below the historical average annualized inflation-adjusted ROI of the S&P. The 4 years previous to this yielded an annualized inflation-adjusted ROI of 14.78% which is about 64% better than the historical annualized inflation-adjusted ROI for the S&P.
The NASDAQ has returned 35.8% since JAN2021. The annualized inflation-adjusted ROI is therefore 3.37%. As you know, the 4 years previous to this yielded an inflation-adjusted annualized NASDAQ record for a 4-year period of 32.53%!
The Russell 2k is the index that represents the small caps or small companies. These companies have been hit very hard since JAN2021 with actually a slight negative return. Their annualized inflation-adjusted return has been -6.86%.
Do you think we are near the top of this cycle and are bonds the better bet heading into (presumably) rate cuts?
Below paragraphs are from Forbes on rate cuts. I think that this cycle is somewhat different in that inflation and rates have been very high for a long time. Further, the reported inflation number this past week of 3.0% is still 50% above the FED's mandate. Cutting rates at this time would not only be extremely dovish, but it would also probably be very irresponsible. For example, this week's core inflation numbers ROSE. That's not a good sign. And we all know that gas has recently jumped over 10% in a couple of weeks. That takes time to percolate through the economy, but it almost assuredly means that future inflation reports will be negatively impacted by that directly and indirectly by shipping and manufacturing costs of mostly everything rising to account for the jump in the fuel costs. I'm not an economist, I'm a scientist and engineer by formal education, but I've taken about 20 credits of economics and finance courses in retirement to supplement the Econ I had in undergrad. So, this is not to be construed as investment advice.
The Fed’s Open Market Committee (FOMC) meets eight times a year to discuss the economy and examine whether to change its monetary policy strategy. Depending on the state of growth, inflation and employment, the FOMC can decide to increase or decrease the federal funds rate, also referred to as the federal funds target rate—or leave the interest rate benchmark unchanged. This rate has far-reaching implications for many of the interest rates consumers and businesses pay on money they borrow and savings they may hold.
“The Fed will cut interest rates when it feels like employment and inflation are too low and it wants to incentivize borrowers to consume and invest more quickly,” says Christopher Burns, vice president, investment strategist for Greenleaf Trust, in Kalamazoo, Mich.
When consumers have access to less expensive credit, they tend to buy more goods and services, driving more economic activity. Meanwhile, businesses are able to more easily finance their operations, which can help boost employment and the overall economy.
Zero Interest Rate Policy and QE
The trouble with interest rate reductions is that eventually the Fed runs out of room to cut rates further. Once the fed funds rate has been cut to zero, there’s nowhere else to go. Central banks in Europe and Japan have experimented with negative interest rates that effectively penalize people for not spending money, but the Fed has consistently shied away from this possibility.Instead, once rates are at zero, the FOMC turns to other policy tools to keep increasing the supply of money and credit in the economy. Since the Great Recession, its weapon of choice has been quantitative easing (QE). This involves purchasing securities on the open market in an attempt to further increase the supply of money and drive more lending to consumers and businesses.
Impact on the Stock Market
Data suggests that stock markets don’t perform especially well in the wake of Fed interest rate cuts. But remember, the Fed cuts interest rates to increase the amount of money available in the economy and spur economic growth. In other words, when the Fed moves to cut rates, economic projections are already looking bleak.This lines up with data collected by Nick Maggiulli, the chief operating officer for Ritholtz Wealth Management LLC. Maggiulli has graphed the performance of the S&P 500 for one year after each of the 29 Fed rate cuts from 1994 to March 2020 and found that returns held steady in the immediate aftermath of the cuts, but after a year were down approximately 10%.
This is not terribly surprising since the FOMC deploys rate cuts to deal with an economic crisis that is either imminent or already upon markets. The same forces that drive the economy into recession, then, are ones that also drive stock markets lower.
Impact on Bonds
Fed rate cuts are designed to lower interest rates throughout the economy and make it cheaper to borrow money. As a result, newly issued debt securities offer lower interest rates to holders while existing debt that carries higher interest rates may trade at a premium—that is, prices in the secondary market may rise. Entities that issue callable bonds may choose to refinance the securities and lock in lower rates.“In recent years, low interest rates have increased the need to look elsewhere for returns and/or income, including stocks, real estate, alternative funds and more,” says Ryan P. Johnson, director of portfolio management and research for Buckingham Advisors, an Ohio-based investment advisory firm. Especially in the aftermath of the Covid-19 crisis, “the Fed has committed to low rates, which makes it more difficult to earn yield on bonds without taking a considerable amount of increased credit risk.”
Impact on Consumer Lending
The steeper the Fed rate cut, the more impact it can have on the cost of consumer credit, for things like certain types of mortgages, auto loans and credit cards. Cuts to the fed funds rate have the most immediate impact on short-term loans, such as credit card debt and adjustable-rate mortgages, which feature floating interest rates that fluctuate regularly with market interest rates.The Bottom Line
While it’s understandable that consumers react to lower interest rates by taking on more debt, leveraging low rates to consolidate higher-interest rate loans, their investment strategies shouldn’t change too much after the Fed slashes interest rates.“Reactionary investment actions are rarely great ones,” says David D’Eredita, founder of Rise Private Wealth Advisor, in Tucson, Ariz. “Changes to the economic environment really shouldn’t be the catalyst for your investment changes. Changes in your own needs and time horizons should.”
The S&P 500 trailing P/E ratio is 27.5 (based on 1Q 2024 earnings). This is historically quite high. The S&P 500 forward P/E ratio is 22.0 (based on forecast 2025 earnings). This is a little above the historical median of 18, but not astronomically high. The forward ratio is generally considered more relevant because stock prices are based on the market consensus for future cash flows, not past cash flows.
It all hinges on future earnings. If they come in below expectations, the market will react negatively. You cannot reliably time the market so the best approach is to stay invested for the long haul and ride out any short term inefficiencies.
It all hinges on future earnings. If they come in below expectations, the market will react negatively. You cannot reliably time the market so the best approach is to stay invested for the long haul and ride out any short term inefficiencies.
A more "reasonable" ratio of 20 on flat earnings could mean a 37% stock market decline. I don't expect that so let's assume earning grow by a healthy 15% and the multiple falls back to 20. That would mean a 16% drop from current values.
IMO the good news for companies is that interest rates are likely to decline. The bad news is that the very large amount of government stimulus spending is starting to decline.
The market is not dropping 16% over the next 6 months, year whatever. There certainly could be a pull back versus where we are now but no where close to 16% unless inflation just goes through the roof.
why is this post in the football forum?
Just thought I’d react like some of you sensitive guys do some posts that trigger yourselves.
Just thought I’d react like some of you sensitive guys do some posts that trigger yourselves.
I didn't predict a 16% correction in the next 6 months. I simply stated that the market is currently valued at historically high levels relative to corporate earnings. I also didn't predict that inflation would go through the roof in the next 6 months. That said I wouldn't be surprised to see a 10% correction in the next year.
The January issue of Kiplinger magazine made predictions for 2024. The article was probably written in late November when the S&P 500 was roughly 4,400. They predicted that it would grow 7% to 4,700 in 2024. Now it's approaching 5,700 which would be 30% since the article was written.
My point is that the market has grown much faster than earnings. The PE ratio was roughly 23 when the article was written and now it's approaching 29.
Here's a chart showing 10 year stock market returns from different starting PE ratios. For all I know the market will continue to climb and PEs could reach 35 but history tells a different story.
Because the moderation on this board is arbitrary. Legally, sure they can remove those types of posts, but their system for picking and choosing, or should I say lack there of is based on personal whim.
It's a mazing what happens to the confidence of Wal Street when Trump survives an assassination attempt with only a chunk taken out of his ear.
I remember posts saying to sell at 5,200 a few months back.
USD total world transactions have increased from 47% pre Covid to near 52% today and it’s the most important factor for all of us and why USD, stock, real estate & wage gains are at/near ATHs despite rates going from 0% rates to 5.5%. 2009 to 2022 was more of a fake economy with manipulation of rates to 0%. We are seeing more BKs with higher rates which allows capital to be re allocated to stronger companies vs prior Zombie company environment via rate manipulation.
Combine USD usage at ATHs with high 22-23 population growth (most important economic demographic) plus high productivity growth = US exceptionalism/outperformance (our GDP growing 2-3x faster than rest of the world) which results in more foreigners converting their wealth/assets/ labor to USD/ stocks/ real estate/ wages.
Financially the country has never been stronger/wealthier but I am monitoring immigration/population growth (it’s slowing vs 2022-2023). When that slows, GDP ( pop growth + productivity growth = GDP) will slow which could result in foreigners taking USD out of system/asset sales. However at the moment it doesn’t really get better than this, our hard work has paid off & it’s a great time to be alive.
Bull markets last a lot longer than anyone expects as we climb the wall of worry. Historically, we’re only about two thirds of the way through the current bull market (based on time) and the most gains occur toward the end of it. The sign the bull market is about to end is when consumers are engaging in significant debt spending at high rates for a prolonged time and investors are throwing every dime into riskier assets. When all of the bears have been shaken out, then we finally get the top.
You can be right on fundamentals but if you’re wrong on timing, you’re just wrong.
Also, fwiw, this EdwardoCarachio guy has been calling for a recession since Obama was elected, except for four particular year when a recession did actually happen. So just keep in mind what I said about timing.
You can be right on fundamentals but if you’re wrong on timing, you’re just wrong.
Also, fwiw, this EdwardoCarachio guy has been calling for a recession since Obama was elected, except for four particular year when a recession did actually happen. So just keep in mind what I said about timing.
This is one of my major worries for the next 20-30 years. This is why the political bickering about immigration is extremely counterproductive. With the low birth rate we need immigration badly. Otherwise, GDP will shrink and social security will evaporate.
Seemingly, we have one party okay with open borders (not helpful because undocumented immigrants don’t pay taxes or contribute in the most productive way) and another party that’s okay shutting out foreigners almost completely (not productive if you want a growing economy). This should be simple, protect the border but make documented immigration A LOT easier. We almost had a bipartisan bill like that pass after 30 years of trying, but it was harpooned for the sake of a man’s ego, go figure.
Yes population growth is the biggest issue facing most counties (look at China pop next 20 years ) but we are only developed country capable of growing population. The market sees this and 1 reason why USD is so strong
I don’t do politics as it’s all nonsense/ propaganda that will destroy your knowledge base ( fear/ hate clockwork orange repetition for clicks / viewers / profit as media are public co and have a fiduciary duty to shareholders )
My analysis is based on how we consume not what we say (big difference ) . People mostly consume / hire based on price / cost not by green card status or what country it’s made in . We are a market based economy and most of our issues are due to market demand not Pols ( oil usage, job outsourcing, gambling, drugs, migrants, inflation, deficits, guns etc ). We are all sinners
Migrants have a higher labor participation rate and a higher productivity rate as employers don’t have to adhere to stricter labor laws (likely the reason we won’t have a more formal imm. process as employers don’t want it & is bad for profits/ productivity ) . I’m not arguing for or against but prefer the market/us to decide vs govt. Only 1 thing brings border crossings to Nil and that’s Recessions. In hindsight we should have been Max exposure equities in 2022/2023 given the population growth but too many listen to media Fear propaganda over raw data. That individual gets his info from TV fear propaganda and doesn’t have an economics background
Last edited:
Trump!!! …….three crybabies just hyperventilated and passed out. This thread will be moved as soon as they come to.
Notice how the liberal political views are permitted with no consequences. That's fine. The economy has been an absolute disaster since mid-2021 and most of the damage (cumulate 24% inflation) is irreversible. We will always pay nearly 25% more for everything that we ever buy because of the last few years. The stock market improving a little from its significant underperformance the last few years is welcomed but certainly not something to beat your chest about.
It's an exaggeration to say the economy has been an absolute disaster. It's been largely fueled by huge federal spending that isn't sustainable but GDP growth has been good and unemployment has been low.
You are correct about inflation.
I miss the thread titled “Does the Stock Market Ever Go Up”. That was a classic
To me it's like assembling a football team. You want the best players. Same with our country and immigration. We should want the people who can best help us grow. That means MERIT BASED IMMIGRATION. Most of the people coming across the southern border are lower educated and minimally fluent in English. They have no money so we're paying to feed and house them. Also paying for healthcare and their children's education. You can argue that we're being compassionate but there's no way you can honestly argue that they're good for our economy.
Does anyone believe that many of these immigrants living in leased hotels and public housing are the best?
Wouldn’t it be a novel idea for the government to enact pronatalist policy that promotes American citizens to have more children? That’s where you start first when you have a declining birth rate that is unable to replace our retirees. Not illegals and not vetted legal immigration. You start with Americans. Period.
It was a lot easier to "stay the course" when the national debt wasn't $35 trillion, when federal spending wasn't approaching 200% of tax collections, when we weren't spending over $1 trillion just to service the debt and when there was at least some hope that government largesse might get reigned in if the right person gets elected.
Due to our fiscal irresponsibility, the dollar is the world's reserve currency in name only.
Depends how you measure the economy. Yes, GDP has been decent (with massive inflation, it should have been higher) and unemployment has been low although it has ticked up some recently, there used to be many millions of unfilled jobs that Americans had their pick (those are mostly gone), and the majority of the job growth is part-time (second jobs, the elderly having to unretire to deal with inflation, etc.) and almost net zero for Americans (much of the new jobs are being taken by illegal aliens).
Here are measures that actually matter to the American people. I would venture to say that most Americans have a right to characterize the economy has terrible over the last few years.
Below is the economic score card (actual results).
People that are middle class to rich:
*Stock Market Returns (inflation-adjusted annual return):
2017 to 2020: DOW 12.03%, S&P 14.78%, NASDAQ 32.53% (largest in history)
2021 to 2024: DOW 1.43%, S&P 6.28%, NASDAQ 3.37%
Middle and lower class:
*Average Annual Inflation:
2017 to 2020: 1.875%
2021 to 2024: 5.3%
*Real Earnings Growth (measured against inflation):
2017 to 2020: 8.7%
2021 to 2024: NEGATIVE 3.1%
*Increase in Average Grocery Bill:
2017 to 2020: 2.4%
2021 to 2024: 24.6%
*Gas (national average):
JAN2021 $2.42 day he left office
Today $3.55
*30-Year Fixed Mortgage Rate:
JAN2021 2.77%
Today 6.92%
*Mortgage Payment on $400k loan:
JAN2021 $2062
Today $3083
*Average Annual Rent Increase (primary residence):
2017 to 2020: 3.38%
2021 to 2024: 6.49%
*Military Pay to Inflation
2017 to 2020 Military Pay outpaced inflation by 2.5
2021 to 2024 Troops lost 5.7% to inflation
Since Jan. 2021, the price of eggs is up 104% — from just $1.47 per dozen to a whopping $3.00, on average.
Other items have seen colossal increases, including bread, which is up 29%; the price of chicken per pound is up 25%; flour per pound is up 24%; and a stick of butter per pound is up 23% since 2021.
The total cost of student loan handouts from 2021 until today is over $153,000,000,000. That’s an average cost of $1430 per American family.
It's funny that EdwardoCarrachio thinks that all-time highs in the stock market, strong GDP, and record lows in unemployment are a disaster. He's completely suckered by Trump, the first president since Herbert Hoover to leave office with fewer jobs that when he came in and the last president to have a recession. I will take inflation ANY day over people losing their jobs and not having any money.
Then you had better invest in child care. Many of the young families I talk to with children claim the costs of child care disincentivize working.
When governors force businesses to temporarily close for Covid, that's a job loss???
Even you're smarter than that
We'd be further ahead in paying for child-care, than providing housing and gift cards for illegal aliens in places such as NYC.
You have to admit, this policy is almost as dumb as cash for clunkers.
Another option is to only provide child tax credits for families where the parents work.
Obviously not.When governors force businesses to temporarily close for Covid, that's a job loss???
Even you're smarter than that
There's a reason I have that guy on ignore. Everything with him is dishonest. I think he is probably smart enough to know, he's just not honest.
