Wall Street Lost Decade — But Not Yet
Market strategists think the increasingly high valuation of the S&P 500 will squeeze out further room to run
To predict simultaneously that an already strong market will have a great next 12 months and a poor next 10 years does imply even, conceivably, a bubble.
In the short term, markets are creatures of what Keynes called animal spirits. Things are moving emphatically in a bullish direction, making it hard to stand in the way in the short term.
For the long term, scarcely anything matters other than valuation. The more expensive a stock when you buy it, the less of a return you’re likely to get for it over a decade or more.
The most widely followed measure of long-term value is the CAPE (Cyclically Adjusted Price/Earnings multiple)
There are reasons why the CAPE would rise over time, as profitability and productivity grow.
But it’s disconcerting that the S&P is more expensive than on the eve of the Great Crash in 1929, and not much cheaper than when the dot-com bubble burst in early 2000.
John Authers Bloomberg 21 October 2024
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