Exciting New Territory for the S&P 500

bee

Interesting concept:

It seems in this exciting new territory for the S&P 500, stock prices are reacting more to changes in the expected rate of growth of the Fed's balance sheet than they are to changes in the expected rate of growth of the S&P 500's underlying dividends per share.

How long that might last is anyone's guess. The only thing we know for certain is that eventually, all periods of relative order, disorder, disruptive events, or bubbles in the stock market come to an end. It's only ever a question of when.

order-disorder-disruptive-events

davidrmoran

SP index analyst Howard Silverblatt on 2nd quarter S&P 500 earnings:

"For Q2 2020, 313 issues have reported, as estimates for Q2 2020 have been reduced 47.9% since the start of the year, which explains why 257 issues, an astonishing 82.1% of the issues, have beaten them (the historical average is 67%). "

Estimates are way easier to beat when you lower them by nearly half, notes John Waggoner. BTW, the S&P500 increased 5.51% (5.64 with dividends), and the three-month period return was up 12.23% (12.87% w dividends).

davfor

Yes. That is an interesting concept. Relatedly, it might also be helpful to link the current bubble to the ballooning federal deficit created by the stimulus programs (which will only balloon further if Biden's proposed New Deal era style programs begin to happen next year). And, linking the bubble to the Feds commitment to keep interest rates near zero further into the future than the stock market looks ahead (TINA) probably also makes sense.

hank

I think the pundits are missing the elephant in the room - that being the election year impact. Normally you’d hear a lot about it. But with the country at high anxiety (largely, but not only due to Covid-19), there’s been little note of the fact that whichever administration is in office leading to an election, levers will be pulled, proposals floated, decisions made that attempt to goose the markets,

Conventional wisdom says the Fed sits back during the pre-election period and does nothing - not wanting to appear partisan. But, whether because they’ve been intimidated by the administration, or whether out of real concern for the Covid disruptions (I suspect both), the Fed has been anything but an impartial bystander this time around.

Can it last? For now ... yes. And the expansionary fiscal / monetary policies underway now will have lasting impact on the economy - for better or for worse. However ... normally things appear sunniest just before the storm. Anyone banking on the current euphoria lasting thru November is playing a dangerous game.

PS - I wish I could tell folks how to invest now. But I can’t. So much depends on one’s risk tolerance, age, time horizon, needs. Ray Dalio in January proclaimed to his investors: “Cash is trash.” Well, ... Yes Ray. I agree with you. However, it wasn’t so “trashy” in March / early April. If you had dry power in the form of cash than, the markets were waiting with open arms for it to be put to work.

Dalio

Shostakovich

So why are small caps going up as well? For sure they will take a kick in the shins this fall...?

davidrmoran

does who wins matter with our high valuations ?

https://www.nytimes.com/2020/08/20/opinion/democrats-republicans-economy.html

Old_Joe

Exciting New Territory for the S&P 500

It's going to be even more exciting when the S&P reenters familiar old territory.