Hey Everyone, market price action continues to move higher even given the very disastrous economic data coming across the news wires…get my take on market action and where we go from here;
Weekly Sound Bites:
• We’ve see Oil Futures actually go below the price of zero, (mostly due to lack of storage) short term Treasuries falling to only 10 BPS which is almost zero, and only to see the unemployment rate rise up to 14.7% giving us near depression like jobs markets…said another way, nearly all jobs that were gained in the US since 2009 have gone away in less than a few months; -yet stock market price performance shows the mood is more upbeat and very positive about things to come…in fact Nasdaq actually edged into the green year to date….when I watch TV Talking heads there are essentially two camps; one is very pessimistic and overall bearish expecting more bad things to come and then those that believe we will continue to see more upside price action in market performance…
• We’ve seen the US Central Bank balance sheet increase by more than $2.4 Trillion to almost $6.7 trillion showing the degree of liquidity the FEDs have pumped into our markets…now we know that markets are suppose to anticipate the future so the rebound in equities would appear to be consistent with a recovery in the US Economy and Corporate earnings…and yet, in the US Futures markets bond prices shows interest rates staying very low for longer periods of time with no inflation in sight and very slow growth…
• We now, by most standards have a very expensive stock market…given the very bad data we saw hitting the news wires this past week we saw all major indexes finish in the green for the week and even Nasdaq moved into positive territory for the year…yet we are seeing S&P earnings fall to an estimated $128 for the year, down from $152 for the year which would put the PE ratio around 23 times earnings…remember, the PE Ratio tells investors how much they are willing to spend for each dollar earned and now we’re seeing they are willing to pay up!…but as I have said many times before, when you inject Trillions of dollars into our economy which forces investors into those assets that offer up better returns then the near zero rates offered up by US Treasuries…hence higher than normal PE ratios as market prices move higher…
• Market concentration is a risk in current markets but is typical when price action moves much higher off lows…even though Nasdaq is now in the green for the year the top 10 stocks in this index account for almost 44% of its value with an average PE Ratio of 47 which is not cheap…but also remember this; –stock rallies done end because investors just suddenly wake up and decide things are expensive…there needs to be a catalyst to move markets lower…so the forward path of the COVID-19 and the economy must change before we see a larger move lower, otherwise we can expect price action to move higher…
Enjoy this Weekly Round-Up;
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
hpb
