The stock market highs

[Tetto]

What in gods name is driving this market? I really don’t get these stratospheric heights we are seeing. I’m 7 years away from “needing” my money and 4 month ago I moved a huge (to me) to cash. I’m just not getting what’s happening; is there another massive crash lurking around the corner? It’s pretty well documented that businesses are not making any money!

 

[USGrant1962]

It mostly seems to be driven by the lack of alternatives. Bonds and cash are earning negative real rates. Gold, Bitcoin, and other non-productive assets are also priced extremely high. And there is a lot of cash sitting on the sidelines to keep the party going.

https://fred.stlouisfed.org/series/WRMFSL

 

[RobbieB]

Fantastic news! I'm getting ready to sell equities to fund our lifestyle for the year!

 

[RunningBum]

If I were a market timer I'd have sold off a bunch too. Fortunately I'm not, so I just keep my AA intact and roll with it.

 

[OldShooter]

... is there another massive crash lurking around the corner? ...

Of course there is. If history is any guide, there always is. And the market always recovers. So the two questions are "When?" and "How long will it take?"

"There are two kinds of investors, be they large or small: Those who don't know where the market is headed, and those who don't know that they don't know." (Bill Bernstein, author and advisor)

 

[Midpack]

What in gods name is driving this market? I really don’t get these stratospheric heights we are seeing. I’m 7 years away from “needing” my money and 4 month ago I moved a huge (to me) to cash. I’m just not getting what’s happening; is there another massive crash lurking around the corner? It’s pretty well documented that businesses are not making any money!

The market sets new highs time after time, that’s normal. Would you like that to stop?

There were 1,100 new all time highs between 1950 and 2014 for example. That’s 6.8% of all trading days or roughly 1 out of every 15 days the market is open that it’s closed at a new high level.

That’s not to say the market won’t sell off some day, they absolutely will at some point. There are any number of reasons for stocks to decline. But stocks don’t have to crash merely because they hit all-time highs.

It’s perfectly normal. Long term investors know that...

If new highs ever stop, then we’ve really got something to worry about...

 

[CincyDave]

What in gods name is driving this market? I really don’t get these stratospheric heights we are seeing. I’m 7 years away from “needing” my money and 4 month ago I moved a huge (to me) to cash. I’m just not getting what’s happening; is there another massive crash lurking around the corner? It’s pretty well documented that businesses are not making any money!

I'm unsure as well as to what is driving it. Seems ahead of itself, but as someone stated, lack of alternatives probably playing a big part. Market often doesn't make sense to me, but enjoying the ride.

 

[Tetto]

The market sets new highs time after time, that’s normal. Would you like that to stop?

There were 1,100 new all time highs between 1950 and 2014 for example. That’s 6.8% of all trading days or roughly 1 out of every 15 days the market is open that it’s closed at a new high level.

That’s not to say the market won’t sell off some day, they absolutely will at some point. There are any number of reasons for stocks to decline. But stocks don’t have to crash merely because they hit all-time highs.

It’s perfectly normal. Long term investors know that...

If new highs ever stop, then we’ve really got something to worry about...

I could understand if airlines were packed with people flying all over the world spending money; if the Main Street businesses were bustling with customers, now it’s all online and how much longer can that endure? High after high, it’s very counterintuitive; and all this stellar news, people making bank in the market in the midst of a pandemic the likes which we’ve never seen before? Or so we’ve been told....

 

[Midpack]

I could understand if airlines were packed with people flying all over the world spending money; if the Main Street businesses were bustling with customers, now it’s all online and how much longer can that endure? High after high, it’s very counterintuitive; and all this stellar news, people making bank in the market in the midst of a pandemic the likes which we’ve never seen before? Or so we’ve been told....

We’ve had historically high P/E ratios before, this isn’t the highest. The market will correct at some point, followed by new highs - that’s what we all want no? Trying to guess when has been a fools errand for 99.99% of investors.

 

[street]

The market sets new highs time after time, that’s normal. Would you like that to stop?

There were 1,100 new all time highs between 1950 and 2014 for example. That’s 6.8% of all trading days or roughly 1 out of every 15 days the market is open that it’s closed at a new high level.

That’s not to say the market won’t sell off some day, they absolutely will at some point. There are any number of reasons for stocks to decline. But stocks don’t have to crash merely because they hit all-time highs.

It’s perfectly normal. Long term investors know that...

If new highs ever stop, then we’ve really got something to worry about...

That was very well said, and I totally agree.

 

[CSdot]

I have been investing consistently since 1998. I chart my growth and comparing January 1 with the following January 1 for each of the past 23 years I have only experienced two (2) negative years. Those two (2) down years were 2008 and 2018.

That means 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2019 and 2020 (21 years) were all positive investment years for me.

Point being, trying to time the market can hurt the long term growth of your portfolio.

 

[Montecfo]

The stock market discounts the future, it does not rate the present.

We pretty much know 2021 will be a huge year for job growth and earnings growth. To the market it is baked in the cake.

Add to that record low interest rates which make future earnings flows more valuable and you would expect record high market values.

THEN add $2-3 T of new stimulus.

That the markets are at historical highs relative to benchmarks is no surprise given these and other factors.

But this is not 1999.

 

[audreyh1]

I'm unsure as well as to what is driving it. Seems ahead of itself, but as someone stated, lack of alternatives probably playing a big part. Market often doesn't make sense to me, but enjoying the ride.

Way ahead of itself!

Unfortunately that sh!t can go on for years.....

So I keep rebalancing.

 

[chassis]

Low interest rates and a good economy. Yes, a good economy. Companies are starting to report earnings and some of the results are blowing the roof off.

Imagine when 5 million people are fully back to work, and consumer spending reflect near full employment. What will earnings and equity prices look like then?

 

[DrRoy]

The stock market discounts the future, it does not rate the present.

We pretty much know 2021 will be a huge year for job growth and earnings growth. To the market it is baked in the cake.

Add to that record low interest rates which make future earnings flows more valuable and you would expect record high market values.

THEN add $2-3 T of new stimulus.

That the markets are at historical highs relative to benchmarks is no surprise given these and other factors.

But this is not 1999.

+1

 

[target2019]

It's a crap shoot. Picture the wealthy in a field taking aim at clay pigeons launched high in the sky. And there are your shattered investments on the ground.

 

[mrfeh]

If I were a market timer I'd have sold off a bunch too. Fortunately I'm not, so I just keep my AA intact and roll with it.

Which, of course, is what everybody should do.

 

[UnrealizedPotential]

I think the stock market moves a lot of the times based on sentiment. That is , a feeling that is herd based made of individual traders. At least that is a theory, and if it's true it would explain why following the news and trying to make sense out of market moves based on that news doesn't make sense. That is a theory and not something I am claiming to be true or false, I think it's true but I am not making the claim.

Of course this theory still wouldn't explain what the current bullish sentiment in the stock market is based on. That could change soon or it may not, but change at some point it certainly will.

My feeling is that we can sometimes tell why a shift in stock market sentiment occurs, but we can never keep our finger on the pulse of that sentiment for very long and that is why in theory, when sentiment changes suddenly we never know why or for how long it has changed . It also could help to explain why following the news or trying to figure out stock market moves based on events doesn't seem to make sense.

So I think it makes sense to stay invested and know your risk tolerance and act accordingly.

 

[pb4uski]

We’ve had historically high P/E ratios before, this isn’t the highest. The market will correct at some point, followed by new highs - that’s what we all want no? Trying to guess when has been a fools errand for 99.99% of investors.

Current S&P 500 P/E is ~38... historical mean/median is 15-16... so if market reverted to 120% of historical mean that would be 19... a 50% decline from current levels.

 

[mrfeh]

Current S&P 500 P/E is ~38... historical mean/median is 15-16... so if market reverted to 120% of historical mean that would be 19... a 50% decline from current levels.

Of course, these ratios are in the middle of a pandemic.

Forward looking P/E is somewhere in the mid 20s. Still high, but not nose bleed territory.

 

[corn18]

Current S&P 500 P/E is ~38... historical mean/median is 15-16... so if market reverted to 120% of historical mean that would be 19... a 50% decline from current levels.

I agree with your thoughts. But it can get a lot crazier before it reverts. And with free money all over the place, I think it will get a lot crazier.

 

[jollystomper]

To quote Bobby McFerrin "Don't Worry, Be Happy"


If it falls 50%, and you have no concern about your portofolio value at that level, it is all good.

 

[kjpliny]

The markets are being propped up by central banks (QE, artificially low interest rates, and ever increasing debt). Stock buybacks, leverage and multiple expansion for the past 5 years are also a main driver. Risk taking and speculation is also in overdrive due to the "Fed backstop".

No idea how long it can continue. Maybe they'll start talking quadrillions in easy money instead of trillions, who knows. It's a huge Ponzi and will collapse on itself one day. Make no mistake, markets are up, but we are in no way a prosperous economy. Since 2008, we added $17T in debt. Most of America's wealth has already been transferred with things of value sold off or outsourced to other countries. Enjoy the fake prosperity while it lasts.

 

[ExFlyBoy5]

Outside of QE and lots of new investors, there isn't any rhyme or reason that makes any sense.

 

[braumeister]

Outside of QE and lots of new investors, there isn't any rhyme or reason that makes any sense.

Actually, the reason was in the OP:

4 month ago I moved a huge (to me) to cash

Pretty obvious, isn't it?