Congratulations bulls, you have done IT.
In a quiet pre-holiday trading session the S&P has done something it hasn't done since 1929.
My data feed shows that in the summer of 1929 the S&P Shiller equivalent has topped out at 29.55. We all know what happened shortly thereafter.
Today, the S&P has quietly and without fanfare surpassed that top by clocking in a staggering valuation level of 29.59.
Now, by this point most bulls are surely screaming "You idiot, just look at the 2000 spike higher to 45". I understand and perhaps that is the reason most bull continue to anticipate this bull market to keep going for years and at least 50% higher.
Fair enough, but you have to take one very important factor into consideration. Earnings on the S&P, or lack thereof, during 1998-2000 period were highly distorted by overweight tech companies. I have seen very good research that adjusted that P/E all the way down to 26 - a more reasonable estimate (Google It).
Long-story short, here is what I am driving at.
It can be argued that on Friday we saw the S&P hit its highest valuation level in history. Higher than 1929, 1966, 2000 and 2007.
What happens next?
Well, bulls would argue, for a million different reasons, that this market will continue to run higher. Trump, bullish technicals, anticipated tax cuts, the FED, etc.... I won't argue against any of these points today.
I will simply point out that that for the stock market to justify today's P/E Ratio of 29.59 major economic/earnings expansion needs to take place in the very near future.
An unlikely outcome considering the fact that the FED has already pumped Trillions of dollars in stimulus into the economy over the last few years (QE + zero interest rates) and is now tightening. Failing to ignite anything but speculation and valuations in the process. Plus, as we have discussed so many times before Trump's Tax Cut Plan is dead on arrival. Find Out Why Trump's Tax Plan Is Dead On Arrival.
So, the question remains.....what happens next?
If you would like to find out exactly what happens next based on our Timing and Mathematical work, please Click Here.