Unprecedented growth leads to unprecedented correction. This is profit booking but huge players. The market will stabilize and start rising again. The fundamentals are still strong
Have you looked at the extreme bubble valuations that are essentially everywhere in the market? The fundamentals are horrific.
2.x% GDP growth stacked against peak PE ratios like ~40 by Coca Cola (KO), with zero (or negative) growth for years.
Who are the crazy investors paying that? The US and global economy can't expand fast enough to pull down these multiples in a reasonable amount of time.
50 times earnings for PayPal, for astounding 15% style growth. And similar for Netflix, except at 200 times earnings. Or Activision up at 50x for similarly uninspiring growth. Could always buy Amazon on the moon at 150-200 times earnings, and wait a decade until their earnings catch up. There's always the exciting Microsoft, almost zero inflation adjusted growth for a decade ($17.6b in net income for 2008), in exchange I get to pay 30x earnings.
I guess there's always Walmart. I can pay 23-26 times earnings, for a company that has had falling earnings for years. Or 28-30 times for 3M, where I can get years of zero growth for that nice fat multiple.
And so on and so forth it goes, across the entire spectrum.
Investors were begging to get crushed up at Dow 26k. The recent surge into the market by retail investors is one of the more classic indicators that a bull run is done. They universally arrive late to the party.
Last time I heard a lot of people saying "the fundamentals of our economy are still strong" was fall 2008. They are not bad, but you need to recall that the nominal full employment comes with far less financial security than in previous cycles as much of it is in part-time jobs, the gig economy etc., and demand is thus considerably more elastic than in an economy dominated by full-time jobs.
Its different than 98. We had a huge housing bubble. We had people getting no income loans. It doesn't seem the same in this case. The biggest risk is going to be the 1 trillion dollar deficit which is resulting in rising yields which makes stocks less appealing. However if you have a lot of inflation you need to put your money in some assets since the value of the dollar is going to be lower.
Good points all, though I'm wary of debt merely having shifted into things like student loans and subprime auto loans (which have a worryingly high default rate). It's not the same by any means, but I feel the combination of an overdue correction and political uncertainty could prove a toxic one.
When interest rates rise, stocks become less attractive relative to risk free assets. Even if fundamentals are strong, equity prices drop in response to higher than expected rates. Interest rates are a key input into asset prices and are somewhat independent from fundamentals
2.x% GDP growth stacked against peak PE ratios like ~40 by Coca Cola (KO), with zero (or negative) growth for years.
Who are the crazy investors paying that? The US and global economy can't expand fast enough to pull down these multiples in a reasonable amount of time.
50 times earnings for PayPal, for astounding 15% style growth. And similar for Netflix, except at 200 times earnings. Or Activision up at 50x for similarly uninspiring growth. Could always buy Amazon on the moon at 150-200 times earnings, and wait a decade until their earnings catch up. There's always the exciting Microsoft, almost zero inflation adjusted growth for a decade ($17.6b in net income for 2008), in exchange I get to pay 30x earnings.
I guess there's always Walmart. I can pay 23-26 times earnings, for a company that has had falling earnings for years. Or 28-30 times for 3M, where I can get years of zero growth for that nice fat multiple.
And so on and so forth it goes, across the entire spectrum.
Investors were begging to get crushed up at Dow 26k. The recent surge into the market by retail investors is one of the more classic indicators that a bull run is done. They universally arrive late to the party.