24 Σεπτεμβρίου 2017

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Today’s quite bubble…

Today’s quite bubble…

18th Dec. 2016 – The US stock market at 2016, reached 8 consecutive years of mainly upward move, i.e. without a serious correction. If it keeps moving mainly up in 2017, will be the 9th consecutive year of rise, without a serious correction.

Checking data since 1900 (over a centennial), only the period 1991-1999 can found something similar but back then, we had the euphoria of tech bubble. Now what can justify a similar euphoria?
If we compare the economies, now and back then, now seems to be in a weaker condition and having a lack of a strong growth (potential) driver like was the tech and internet sector in the Nineties, even if it proved a bubble.

In the over centennial history of US stock markets, the rule was that the major upward moves completed at a period of 4 to 5 max. consecutive years (i.e. without a serious correction).

Now we have exceed this norm, by three years and if the market will move mainly up, also in 2017, will have exceeded the norm by four years. The market seems a lot overpriced fundamentally, whatever way you examine it. If you choose to ignore all these data, is like you think that this time is different. But what is different this time? And count that history teach us that never is different. We just think it is.

I don’t know what supports market in these high levels. But I don’t care. Whatever it is, cannot last. Trying to explain what is happening, I think is speculation of what the president elect, Donald Trump, can do to boost the economy. But really, he cannot do a lot, even if he moves in the correct path. The data are too many to ignore them. Sooner or later, the market will correct. It has already exceeded the norm, by far. It is fundamentally very overpriced. So can 2017 be a year of stocks rise?  If it be, it cannot be a strong rise. The upside potential is very weak and uncertain, comparable to downside risk. When market realize this, will correct and will be a strong correction because the previous upward move was based, mainly in speculation.

It seems much more possible that the market, S&P-500, in 2017 will move mainly down, and can lose in an annual basis, 10 to 15%.

Panayotis Sofianopoulos

Author of HERETIC INVESTOR

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