Each and every day we hear, stocks are cheap - P/Es are low, money-on-the-sidelines, sentiment is contrarian-wise weak, 'it's an election year', and many other anecdotal BTFD-driving broker-based sound-bites. The truth will perhaps set you free. On both a valuation (trailing P/E and market-cap/GDP) basis and cyclical (long-term sideways trends, percentage holdings of stocks, historical election/decennial patterns, coincident-to-lagging indicators, and financials leading) basis, the fact is - the only drivers of bullish reasoning here is recent momentum, an implicit 'rationality/Bernanke put', and an implicit bias towards self-sustaining behavior by an entirely-dependent marketplace of professional commission-takers.
Valuation Insight:
On a trailing P/E basis, we are anything but cheap. In fact over the past 90 years we are almost perfectly 'average' and have not seen the re-emergence of secular bull markets until this trailing (hope-less) data drops notably further...
[2]
The stock market's value (market-cap) is well above its 70-year average relative to US GDP. At 2-sigma over its long-term average, stocks appear anything but cheap...
[3]
as the ponzi-like demand for stocks - by every fast-money hopeful investor/trader - maintains a status quo that remains notably away from long-term risk aversion realities.
Cylical Insight
On a long-term cycle basis, we have a few more sideways years (at best) before expectations of a 'secular bull' can have any credence...
[4]
as the typical sideways range-bound market has last 15-25 years, and we are well ahead of historical trend as we keep hoping that this breakout will be different...
[5]
and we are also well ahead of all the usually-cited cycles - election, seasonal, decennial - as hope remains efusive...
[6]
and fundamentally the leading-to-coincident indicator - which has tended to historically peak with stocks over the last 50 years - has rolled over quite notably divergent from stocks...
[7]
and the typical leaders of any secular rally - the financials - will be under more pressure as the Fed maintains ZIRP and the hope of more QE keeps the curve flat; making financials a headwind rather than a tail-wind for a broad market rally...
[8]
The bottom-line is that buying stocks here is a hope strategy - as it always is really and we have seen these kind of hopeful situations twice before in the last 10-15 years. As someone once said, fool me once, shame on you; fool me twice, shame on me; fool me thrice, shame on Bernanke.
Charts: BofAML