Friday, June 10, 2016

US Stock Valuation Are Neutral to Slightly Optimistic, Not "Stretched"

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A temporarily selloff that turns the majority extremely pessimistic bears despite a powerful rally since 2009 and traps them on the wrong side of the trade (bear trap) in 2016 or early 2017 remains a possibility, but don't expect the investment houses to provide that kind of clarity. While stock valuations, trading at or near all-time highs, are commonly cited as "stretch", long-term cycle concentrations suggest they're much closer to neutral to slightly optimistic. This classification, unfortunately, doesn't support fear-ladened headlines, and the two F's (Fear and Free) generates clicks in this business.

Stretched valuations imply concentrated. US stocks valuations haven't been negatively concentrated or "stretched" since 1997-2000. Although US stocks were positive concentrated or extremely "compressed" in 2009, few other than Warren Buffett and quiet money, a world that doesn't care about the two F's, were following their message.

Headline: Goldman Says There's an Elevated Risk of a Big Market Selloff

"With the S&P 500 close to all-time highs, stretched valuations and a lack of growth, drawdown risk appears elevated." So says Goldman Sachs Group Inc. Managing Director Christian Mueller-Glissmann, who highlights that selloffs in excess of 20 percent for major bourses occur relatively frequently and recently have been brought about by concerns of a global nature. With a possible Brexit, the U.S. presidential elections, and a Fed that appears committed to continuing to lift policy rates, this level of event risk is certainly on the table.


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