S&P P/E Ratio 25.19X
The current so-called recovery is in its 95th month and is the second-longest one on record, the longest being 118 months. The present S&P P/E ratio is very high and makes one think of 1929 and 2000. The record highs on Wall Street contrast strongly with the bad news from the automobile sector and the even worse situation in retail with the number of store closings increasing at an alarming pace. If the American economy is primarily a consumer-driven one, then investors should be alarmed. The stock market continues on its merry way even if the Fed has clearly indicated that it believes that the economy is strong as unemployment is down and, therefore, a rate increase in June is to be expected. The Fed usually gets it wrong.
More and more commentators are voicing doubts about the high prices of equities even though the market continues, at least apparently, to maintain its current high prices. The old adage “Sell in May and go away” may be the best advice that one can give in the present situation. It would be better to lock in profits and then wait until the correction takes foolish investors unaware. Wall Street, of course, counsels buying the dip, and that is apparently what happened after last Wednesday`s blip on the radar.
The question to be asked is how long it will be before the real correction comes along or the slow fall begins and gathers momentum. Can the current bull market continue much longer? The answer is that it could even though there are signs that the economy is not doing well. False news is not only to be found in politics. Business people can also offer misleading interpretations of the economy and provide poor advice. Poor advice means that the person who follows it will become poorer.
This Newsletter has advised selling US dollar equities in order to take profits while the getting is good. “Buy low, sell high”. Unfortunately those who follow the sirens of Wall Street often end up buying high and selling low, which is the opposite of what one should and would like to do. One argument in favor of selling now is that equity prices are already so high that it is unlikely that they will go higher.
There is also the consideration that the FANGS have accounted for most of the recent gains in the market while other companies have seen their stocks falter. Given that the buyback frenzy seems to be abating, it would be a good idea to sell now since companies that are no longer buying back stock will most likely see their stock move sideward at best. Real estate, physical gold and silver could be the best hedges against a market crash. Semper paratus should be the motto of every investor.
Walter Snyder
info@swissfinancialconsulting.ch
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