The Big Picture, What it Means

The Big Picture, What it Means


The S&P 500 trades at 17.3X forward 12-month earnings. That is a small premium to the 5-year average of 16.6X according to FactSet. It is an acceptable premium in light of where interest rates are. And it is not as rich as where things were at the start of Y 2018, or March Y 2000, when interest rates were much higher.

That means that the US stock market has space to get richer. My work show that there is a good chance it will considering Fed Chairman Powell last week gave it the license to do so.

The US stock market is entering the home stretch to Y 2019. All things considered it is in the best spot it can be, record highs.

Trade discussions with China are progressing in a manner the suggests there might be an easing of the trade tension if not a comprehensive deal; the labor market is strong and individual investor sentiment is not excessively Bullish.

And we have some assurance that the Fed is not going to get in its way soon with an interest rate hike.

When the market do not fear the Fed, and when there is a positive tone in the headlines, there is a good opportunity for players to come out to play, so it is fair to argue that the potential for that to happen improved with the policy outlook communicated by the Fed last week.

Remember, Sir John Templeton’s view that Bull markets mature on optimism and die on euphoria. 

When a Bull market dies, typically it does with a extra 20% run. So always take what the market gives.

Have a terrific week.

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