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Stock prices have reached what looks like a permanently high plateau.

WABACWABAC
in Other Investing
So said Irving Fisher many years ago. Today I read that there is a new normal on Wall Street. Dinky linky.
strategists are rethinking what normal looks like for today’s market.

Bank of America equity strategist Savita Subramanian is among those making the case.

“Perhaps we should anchor to today’s multiples as the new normal rather than expecting mean reversion to a bygone era,”

/snip

Sam Stovall, chief investment strategist at CFRA Research, told Yahoo Finance that while valuations remain elevated compared to long-term averages, they look more justifiable when measured against the past five years — a stretch marked by megacap leadership and strong fundamentals.

“Over the past 20 years, the S&P 500 is trading at roughly a 40% premium to its long-term average on forward estimates,” he said. “But on a five-year basis, when mega-cap tech began to dominate market cap and earnings growth, that premium shrinks to a high single-digit range.”
1. I'm waiting to read the magic words.

2. It's really interesting to see what lengths people go to to find reassuring patterns in data.




Comments

  • JD_co
    WABAC said:


    1. I'm waiting to read the magic words.

    "This time is different."

  • WABACWABAC
    In the form of a question please. :-)
  • JD_co
    Can I take "Stock Market fallacies" for a thousand?
  • WABACWABAC
    Made me laugh. :-D

    Thanks.
  • DrVenture
    What is missing is an explanation/rationale. Some sort of justification for higher valuations.

    Is it both domestic and foreign buyers with FOMO? Productivity? Greater consumer demand? Something else? Which of these things is perpetual?
  • hank
    edited September 29
    Same might apply to corporate debt. WSJ has been sounding alarms. Premium from investment grade corporates over government backed debt is at historic lows. Worse as you go down the ladder.

    “Two sudden bankruptcies in the auto world—of a subprime lender and a parts supplier—have triggered (worries) among bond investors and analysts.”

    Article The Credit Market Is Humming-and That Has Wall Street On Edge - WSJ 9/29/25

    (At MSN if you can pul it up.)
  • DrVenture
    Interesting, Hank. I believe that this link will work.

    https://www.msn.com/en-us/money/markets/the-credit-market-is-humming-and-that-has-wall-street-on-edge/ar-AA1NtE0D
  • Observant1
    edited September 29
    One reason bond prices are increasing is that many investors expect further Fed rate cuts.
    What would transpire if inflation became worrisome and the Fed hiked rates in the months ahead?
    It appears that certain bonds are "priced for perfection."
    The spread for IG corporate bonds was only 0.74% in September — the lowest level since 1998.
    The spread for junk-rated bonds is about 2.75% which is near the record low of 2007.
    Private credit defaults have been on the rise with a default rate of 9.5% in July before receding slightly.

    “'There’s been a very positive investment environment for a long time,
    with a large amount of money and a lot of optimism,' said Howard Marks,
    co-chairman of investment firm Oaktree Capital Management, which specializes in credit investing.
    He said that can lead to high pricing and declining quality.
    'The worst loans are made at the best of times.'”
  • DrVenture
    I too expect further rates cuts, and then very possibly a reckoning. With various labor shortfalls as we deport workers and limit visa availability, inflation already knocking at the door of 3%, lofty market valuations and rising credit defaults, there are a lot of things that make the future a bit worrisome.

    My portfolio has earned almost 65% since Jan 1, 2024. Giving back a large chunk of those gains is more concerning that squeezing every drop of juice. I expect lower FED funds rates to juice bond and stock valuations, until something simply doesn't work any more. maybe inflation starts to rise changing the FED perspective, or anything really, then it will be "Katie bar the door", as folks rush to the exits.

    As I have stated here before, I am my lowest equity allocation in my life, and considering going lower. The safe bet may be quality bond funds for the short term. Something I have started owning again for the first time since 2019.

  • Old_JoeOld_Joe
    Take the money and run.
  • FD1000
    If Irving Fisher said many years ago that stock prices have reached what looks like a permanently high plateau, he obviously was wrong.
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