Markets could not be more optimistic about the future. We see it with consumer sentiment, spending and in the stock market. For example, the S&P 500 surged to a new record high 6090 – far exceeding the most bullish of forecasts from 12 months ago. Will analysts be equally bullish about 2025? Post Trump’s Nov 5th win – the bulls have found another gear. Trump has painted a compelling vision of a US economic resurgence built on three primary pillars: (i) lower taxes; (ii) sweeping deregulation and government reform; and (iii) an
emphasis on domestic production. Why does this have corporate America very excited?
Tobin’s Q-Ratio Trades at Historical Highs
By just about any intrinsic measure – the stock market looks expensive. Ben Graham would be warning investors to heed caution. Now one of the more widely cited metrics is its forward price-to-earnings (PE) ratio – which trades at a very high 22x. However, another intrinsic measure is James Tobin’s Q-Ratio – which now trades at a record high – exceeding that of the dot.com bust. And whilst not a great timing tool – it maintains a very reliable record of picking long-term secular highs.
Here Come the Foolish Forecasts
Once again, it’s that time of year. Investment houses are set to release their forecasts for the upcoming year. Why they bother I don’t know? And whilst there is still approx one month to go – if the markets finish anywhere near 5,800 – most forecasts made for 2024 will be abysmal. The average end-of-year forecast for 2024 was ~4600. The closest looks like being Ed Yardeni – who forecast 5400 – however at the time appeared wildly bullish. Well done Ed.J.P. Morgan told their clients we would finish 2024 around 4200 – currently more than 40% off the mark…. could it get any worse? So what do you think they will tell us for 2025? My guess “up in the realm of ~8%”. Why? Because that’s the 100-year average.
The Trump Trade Stalls
Last week when assessing the surge in markets – I offered examples of how market (sector) dynamics shifted. Adding to that theme – I was not overly surprised to read how institutional investors are putting money to work. For example, Bank of America Corp.’s monthly survey of global fund managers indicates that Trump’s decisive win is perceived as a potential turning point for investment strategies. And whilst that could be true – it pays to look at history… what can we gauge from Trump 1.0 (and the impact on markets).
For a full list of posts from 2017…