Bull market.... yes, but...

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adave
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Bull market.... yes, but...

Post by adave »

I am struggling to understand why people are doubting this bull market and so concerned that it could be "overvalued".

I went back using Schwab portfolio performance feature (which has improved a great deal recently) - a start date of Jan 1st 2022 until today yields a pretty small return both cumulative and annualized.

People seem to forget how ugly 2022 was, and considering inflation, why is this market considered "high"?
jebmke
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Re: Bull market.... yes, but...

Post by jebmke »

One, people like to worry. Two, perhaps things were overvalued in 2022 and we are just back to the same precarious spot.

I don't pay attention to valuations, personally.
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Tamalak
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Re: Bull market.... yes, but...

Post by Tamalak »

Cape ratio is over 30. Even forward P/E is over 20. I'm not going to conclude the market is overvalued, but it's a fact that the domestic market, at least, is HIGHLY valued compared to history. US companies will have to have very strong earnings growth to live up to expectations.
Hyperchicken
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Re: Bull market.... yes, but...

Post by Hyperchicken »

When no one doubts the market, all investors pile into stocks driving the price up. It is only when stock prices look unsustainably high that piling up stops. That is why stock market always seems overbought.
peterw
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Re: Bull market.... yes, but...

Post by peterw »

With overseas markets not doing too great on average, thr US is a bright spot it seems.
bd7
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Re: Bull market.... yes, but...

Post by bd7 »

adave wrote: Sun Feb 11, 2024 2:58 pm I am struggling to understand why people are doubting this bull market and so concerned that it could be "overvalued".
Because they are looking at the values in nominal, not real (inflation adjusted) terms and aren't figuring inflation into their forward projections. I think the market doesn't need to crash, all that needs to happen is for runaway inflation to render the nominal gains meaningless.
rockstar
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Re: Bull market.... yes, but...

Post by rockstar »

adave wrote: Sun Feb 11, 2024 2:58 pm I am struggling to understand why people are doubting this bull market and so concerned that it could be "overvalued".

I went back using Schwab portfolio performance feature (which has improved a great deal recently) - a start date of Jan 1st 2022 until today yields a pretty small return both cumulative and annualized.

People seem to forget how ugly 2022 was, and considering inflation, why is this market considered "high"?
The talking heads have to print something to stay in business.
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dogagility
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Re: Bull market.... yes, but...

Post by dogagility »

adave wrote: Sun Feb 11, 2024 2:58 pm I am struggling to understand why people are doubting this bull market and so concerned that it could be "overvalued".
People are attracted to angst, and the media makes money off of it.
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Beensabu
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Re: Bull market.... yes, but...

Post by Beensabu »

adave wrote: Sun Feb 11, 2024 2:58 pm People seem to forget how ugly 2022 was, and considering inflation, why is this market considered "high"?
It was high before 2022. The recovery has been too fast, driven by normally inflation-sensitive growth stocks due to AI hype.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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warner25
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Re: Bull market.... yes, but...

Post by warner25 »

Tamalak wrote: Sun Feb 11, 2024 3:17 pm Cape ratio is over 30. Even forward P/E is over 20. I'm not going to conclude the market is overvalued, but it's a fact that the domestic market, at least, is HIGHLY valued compared to history. US companies will have to have very strong earnings growth to live up to expectations.
This is the answer. I'm well aware of the quality of Shiler PE / PE10 / CAPE as a predictive measure, but from a broad historical perspective, wow... The only times that valuations have ever been this high were 1998-2001 and 2021-2022.

https://www.multpl.com/shiller-pe
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Ocean77
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Re: Bull market.... yes, but...

Post by Ocean77 »

As long as lots of folks worry about this, we're in good shape and the bull market will continue. Watch out once people get optimistic.
30% US Stocks | 30% Int Stocks | 40% Bonds
furiouschads
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Re: Bull market.... yes, but...

Post by furiouschads »

Michael Cembalest was on the recent episode 129 of The Compound and Friends podcast. Great show.

One thing that was discussed was the primate instinct to watch for threats and react to them. The monkeys that didn't react may not have passed down their genes. Thus all the over-reaction to (and over-coverage of) scary stuff.

Consider occasionally reminding your inner chimp that--yes, maybe there really is a pony in here somewhere!
Normal is an illusion. What is normal for the spider is chaos for the fly. --Charles Addams. #613 in 2022 BH prediction contest. #42 in 2023. Not that I am keeping track.
Elysium
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Re: Bull market.... yes, but...

Post by Elysium »

adave wrote: Sun Feb 11, 2024 2:58 pm I am struggling to understand why people are doubting this bull market and so concerned that it could be "overvalued".

I went back using Schwab portfolio performance feature (which has improved a great deal recently) - a start date of Jan 1st 2022 until today yields a pretty small return both cumulative and annualized.

People seem to forget how ugly 2022 was, and considering inflation, why is this market considered "high"?
I am struggling to understand who is getting concerned about overvaluation. There will always be some perma bear types who sees the market as overvalued. Then are some who look at valuation metrics that does not fit into their equation of correctly valued. Market is collection of all of this.

There is no broad overvaluation anyway, but large growth looks fully valued or pricey. Same goes for large core, or the less growthy blue chips. If you were planning to buy some well established blue chip companies, for a while they all look fully valued. That's basically 80% of S&P 500. That doesn't mean anything other than do not expect returns to be outstanding for those segments of market, not doomsday scenario.

Which leaves rest of the market, value, especially small value, mid value, and large value in that order looks cheap. They have been for a while now. The gap between value and growth has been significant in past year which left most of it priced better than the stocks getting most attention.

Then there is international, developed and emerging markets, all looks fairly priced.

All of that means, if someone were concerned about valuations there are plenty of places to place money without worrying about buying something expensive. Just don't overload on growth, that's all, or just invest in the whole market and stop worrying about valuations.
chassis
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Re: Bull market.... yes, but...

Post by chassis »

adave wrote: Sun Feb 11, 2024 2:58 pm I am struggling to understand why people are doubting this bull market and so concerned that it could be "overvalued".
Because they don’t know any better, and they could believe it paints them as having wisdom in the eyes of their peers if they adopt a permabear position. And MSM influence on posters.

In summary: for no good reason.
Tom_T
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Re: Bull market.... yes, but...

Post by Tom_T »

There are a lot of people, including a number of people here, who are quite confident that they know why the market is where it is today. Everyone has an explanation/opinion.

Investors as a group must be very stupid if they continue to buy stocks. Either that, or perhaps the people who claim to know that the market is "too high" don't know what they're talking about?
gutterman
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Re: Bull market.... yes, but...

Post by gutterman »

People seem to forget how ugly 2022 was, and considering inflation, why is this market considered "high"?
[/quote]

What happened in 2022? :happy

I was investing during the Great Recession so for me they are all compared to that
ClassII
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Re: Bull market.... yes, but...

Post by ClassII »

If you subtract the investment media's current favorite term, the "Magnificent 7" out of the market numbers, we're actually pretty cheaply valued. it's just these 7 are so absurdly overvalued or at least highly valued, it distorts what we're looking at.

You can either look at it two ways: Is Apple, Google, Facebook and (ugh) Tesla going to crash in the near future and take the rest of us along for the ride? Will they continue to make good money and the rest of the market eventually catch up? Or is there something intrinsic about the mega-cap tech industry that will simply make them always be far ahead of the rest?

I think unless the Mag 7 falter (unlikely, except maybe TSLA) and the economy slows, we're in good shape. Either they'll stagnate and the rest of the market catches up, or they'll always just be ahead of the pack. Seems win-win to me since I'm holding the entire market.

I lean towards us always having these perpetually extremely-profitable mega tech companies and should adjust our feelings of forward P/E and CAPE for this new reality. Just like comparing today's markets to pre-Great Depression even the market of 1990 is antiquated knowledge. I think moving forward we can just expect to see higher P/E and CAPE averages due to a few enormous players and that's just fine.
exodusNH
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Re: Bull market.... yes, but...

Post by exodusNH »

ClassII wrote: Mon Feb 12, 2024 6:48 am Just like comparing today's markets to pre-Great Depression even the market of 1990 is antiquated knowledge. I think moving forward we can just expect to see higher P/E and CAPE averages due to a few enormous players and that's just fine.
I think one must also take into consideration tax law that currently favors price appreciation. Capital gains haven't always been as favorably taxed.

It also wasn't all that long ago that you had to spend quite a bit of money on commissions to cash out a position, making dividends a convenient way to see a return without a commission penalty, especially on oddlot sales.
Last edited by exodusNH on Mon Feb 12, 2024 7:56 am, edited 1 time in total.
Triple digit golfer
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Re: Bull market.... yes, but...

Post by Triple digit golfer »

There are millions of investors in the market, collectively. The price is what those investors believe is fair. Who's to say that's over or under valued at any point in time?

Look at the 1990s. Look at 1996. So many people thought the market was over valued. And yet, it increased significantly for another three years before crashing to a level higher than the 1996 level.
EquitiesOrGuitars
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Re: Bull market.... yes, but...

Post by EquitiesOrGuitars »

Food for thought on this topic, from news article published today, by a wealth manager in Canada - Martin Pelletier.

Some interesting stats included below, direct links in article to the supporting data/charts for each.
"Markets have turned into a one-trick pony — and that doesn't bode well" Financial Post (Canada), Feb 12 2024
https://financialpost.com/investing/mar ... -bode-well

"The S&P 500 has now reached a three-year high, according to Jason Goepfert at Sentimenttrader.com, but it is with less than 40 per cent of stocks being above their 10-day moving average, less than 60 per cent above their 50-day average and less than 70 per cent above their 200-day average. That’s only happened once since 1928: Aug. 8, 1929.

The ratio of the equal-weighted S&P 500 to the cap-weighted S&P 500 has also now fallen to its lowest level since 2009, according to Liz Ann Sonders, chief investment strategist at Charles Schwab Corp.

And since Microsoft Corp. announced its US$10-billion investment in ChatGPT in January 2023, the Magnificent Seven have generated more than 100 per cent of the S&P 500’s price return, with 42 per cent of that return coming from one stock, Nvidia Corp., said macro researcher Andy Constan.

As of Feb. 1, 2023, Nvidia had added US$750 billion in market cap over 70 consecutive trading days, which is an average of US$10.7 billion per day. That is something considering its market cap five years ago was only US$90 billion and it is now the same size as Amazon.com Inc., making it the world’s fifth-largest company.

By spending US$5 billion over the past five years, investors have boosted Nvidia by more than US$1.61 trillion in market value, a 19x increase. Somehow, Nvidia is going to backfill trillions by only spending US$10 billion over the next five years, which paints a picture as to how large the expectations are for artificial intelligence and how much market share the company is expected to have."
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