Faith, hope, and confidence
are the 3 key factors driving stocks at this point with fundamentals lagging an awkward 4th place. Faith in the perpetual central bank put (and bad news is thus good news); Hope that repeating the same 'experiment' following its previous failures will work this time; and confidence that the old normal is re-attainable (no matter how many times we kick the can). Year-to-date, S&P 500 earnings are up around 7% (and the trajectory is declining); accordingly, as we noted previously
, confidence is ultimately responsible for levitating nominal stock prices through multiple expansion.. and is responsible for the rest of the market's gains. With confidence now fading (according to most surveys) investors will not be willing to pay increasing multiples unless they are confident that the future streams of earnings are sustainable and forecastable...
The S&P 500's return year-to-date - between Fundamentals and markets...
as we noted before,
But, it's all about confidence... investors will not be willing to pay increasing multiples unless they are confident that the future streams of earnings are sustainable and forecastable... And simply put, the current levels of Consumer Sentiment need to almost double for the US equity market tp approach historical multiple valuation levels...
And remember - as we noted here - its the 80% that consume and the 80% are not benefitting from the wealth effect
(much to the chagrin of the Fed).
So next time your "manager" or investment advisor proclaims stocks are cheap compared to historical peak levels, perhaps its worth asking him with "risk" priced into the market at almost all-time lows,
and a Fed that is only capable of feeding the richest percentiles of the nation (the rich have never been more comfortable)
Where is the next doubling of Sentiment coming from?
Especially in light of the collapse in economic confidence we are seeing recently.