(Revised May 11, 2021)
Strategy was revised May 11 to reflect a bear wave trend in bonds.
Prices appear to have topped but remain bullish.
The math is as simple as buy low / sell high.
Cyclically Adjusted Price to Earnings (CAPE)
Has Only Been Higher Once Before
Since the market bottom on March 23, 2020 and June 2020, the wave pattern of prices has oscillated lower, while volume has oscillated slightly higher.
The historical pinnacle of P/Es (P/E 10 YE) points to a bear not the start of a secular bull.
The NAAIM index of professional investors, aka “smart money” turns notably bearish.
An apropos quote for today’s asset allocation environment.
It’s only when the tide goes out that you learn who has been swimming naked.Warren Buffet
Despite the general contention that the economy and the stock market are inexorably connected, the facts get in the way of confirming common wisdom.
This chart presents the average stock market return and average GDP growth by decade and by secular bull/bear market cycle. Economic growth is not the primary driver of stock market returns; instead, returns are driven primarily by a cycle In the P/E ratio.
Although economic growth does increase the denominator in the P/E (earnings), actual returns are generally the result of trends in the P/E ratio.