Re: Is the stock market overvalued and a crash imminent?
Let me take the other side of that argument b/c I've had it a few times and I'll be happy to be corrected with evidence:
>> 1.indexes at ATHs.
This is not bearish by itself. If anything, it is bullish.
>> 2. Margin debt high
There is no evidence that I know of to think margin debt is too high. Margin debt as a percentage of market capitalization has probably been going down since household bank deposits are substantially higher now than before the pandemic.
>> 3. Allocation to stocks high; allocation to bonds down
This is true. And I've called for a tactical risk to the bond traders who are short bonds. But for most people this is not a sign of speculation. With the interest rates below the inflation, the logical thing is to be barrowing money rather than lending it, which is what buying bonds is.
On a related note, if you look at the cumulative net flow of funds, since 2008 trillions have been put into fixed income whereas only $500B has gone into stocks. It does seem lopsided, but not the way you are suggesting.
>> 4. Valuations high, measured by PE, P/S, dividend yield, or any other yardstick.
Absolute valuations don't mean anything. Only relative valuations matter. By that measure, relative to the bond yields, stocks are not excessively valued. Historically, the forward Earnings Yield of SP500 has equalled the yield on the 10 year treasury. Below is a chart illustrating that. As you can see, the stocks are very much undervalued. So I for one am tired of media quoting absolute metrics out of context to grab headlines about how overpriced the stocks are and how they will crash any day now.
>> 5. Many successful IPOs for companies with no profits; some with hardly any revenues
This is an appropriate sign of the top and a good concern. However, why don't you look at the chart of SPAC's and no-profit IPO's to see how they have done. They have already crashed massively. They just didn't take the whole market down with them. You don't believe me? Grab 20 random spacs and look how much below their top or even below their 50DMA they are.
>> 6. Kinky go-go momentum Story Stocks in favor
I'm all for kinky go-go <vbg> |
