This is a VERY long term outlook on the market. Shown is from pre-DotCom bubble. This is relationship of SPX to M2 money supply. There isn't a more straightforward relationship than this. People comparing the current market to the DotCom bubble are actually only halfway there in this respect. We might be disconnected from reality right now but in this figure its no where near turn of the century. So the question is if this is a exhausted breakup from the trend and it reverts or it keeps up the northern trend? Fed is continuing its QE and SPX keeps going up. How much longer can this go on?
Haha this bubble is so much worse than the dotcom! During dotcom, the macro economic and monetary environment was fine, there was just too much enthusiasm. Now it is not just enthusiasm but outright delusions with a completely fckd up macroeconomic/monetary environment of ridiculous low rates for years and astronomical sovereign/corporate debt levels. And even with all that artificial support, that only gets worse and worse to roll back, growth isn’t spectacular relative to history.
cgh118
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@rowan66172, thing is we can trust the FED until we can't. I have to believe they are nervous as to how to wiggle out of this mess.
rowan66172
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@cgh118, To be honest, I just think they are trying to keep their wealth afloat at the cost of the future (which would not be their problem). They should provide long term sustainability and have very short term (never years like the last +decade) support, not to prevent every downturn/shrinkage but only to bridge immediate collapse (07/08 crash, corona lockdown, etc.). Sometimes you should just let the economy shrink a bit naturally, definitely when the artificial support has been extreme for over a decade already. And they should always hike immediatly (but gradual) when the economy is picking up, even though it causes a downturn in stocks (which they should ignore, rather than please at every turn). They just have too much conflicting interests.
The biggest problem with their policy is that the rationale is flawed. Companies do not use the additional money to solidify their business and make it more suistainable in order to weather the next downturn without support, they just use it to speculate and expand their growth/profit further, causing problems immediately after slightly rolling back support and creating the same problem at the next recession. Hence, it is a vicious cycle but people with the ability to make the necessary hard decisions are just lacking.
But yeah, it can definitely continue. Companies like Tesla still at P/E's of 700 and stocks just keep going up, reality can be ignored for a long time, until it can't and the fallout becomes worse (mostly in terms of recovery time)
cgh118
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@rowan66172, you nailed it Rowan. And when those abrupt downturns happen they are first to sit in musical chairs and the retail traders tend to be the last. Those that can't bare the losses as easily.
ATSpain
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I agree! The DotCom bubble was much more overvalued and I think we could keep running from here on the S&P until either the Fed moves, or we have a slowdown in earnings. Just as an experiment, you should also look at QQQ/M2. The Nasdaq right now is very highly valued and looks a lot worse than this chart. The bears have an argument, but until there is an event that would impact company earnings, I doubt we see a major pullback for the whole market. I understand highly speculative stocks are already in bear markets though.