The S&P 500 is pushing into an area of clear technical resistance. What’s more – fundamentally it’s no longer cheap at approx 18.5x forward earnings. My thinking is the market is not an attractive risk/reward bet at these levels… and are under-appreciating the task in front of the Fed.
The Bull vs Bear Battle Lines are Drawn
The bulls have market momentum supported by solid breadth. We are past peak inflation (it would seem) which lends itself to a more dovish Fed (in theory). However, valuations are high – trading 18.5x forward. What’s more, the Fed is withdrawing liquidity – not adding to it. That’s an argument for the bears.
The “Everything Rally” as CPI Comes in at 8.5% YoY
The market has now rallied to a zone of potential resistance (4200 to 4400). The next few weeks will be a strong litmus test for market. My guess is we roll over…
Do Upside Gains Easily Outweigh the Downside Risks?
With the S&P 500 some 14% off its lows – trading just below 4200 – at 17.5x fwd PE – what’s the potential upside reward? And do those potential gains outweigh the downside risks?
For a full list of posts from 2017…