With the reduction of tensions on the Black Sea, global markets rallied yesterday to multi-year highs. In the U.S., the S&P 500 closed at an all time high of 1873.91. Other markets set new multi-year or all-time highs as well. The world is breaking out.

The day’s trades had barely closed, when the Johnny one-notes began their usual litany of complaints. The market is long in the tooth, we are told; the bull cycle is Fed-driven, it’s temporary, its “toppy.”

Then there is my favorite complaint: All time highs are dangerous, a sign of a market that has gone too far. (Subtext: Get out now!)

Unless you can be bothered to look at the actual numbers: If you were willing to actually consider the quantitative data about highs, you might reach a somewhat different conclusion. In point of fact, one of the most bullish things that can happen to any market is for it to reach new multi-year highs. Continues here


All time high by year

Category: Investing, Markets, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “Market Highs Are Bullish, Not Bearish”

  1. Concerned Neighbour says:

    BR, with all due respect I am looking at the numbers, and here is what they’re telling me:

    1. S&P 500 is trading at the second highest Q ratio in history.

    2. The Shiller P/E is accelerating towards 30.

    3. There are no bargains out there, because everything with (or without) a pulse is being bought hand over fist.

    4. Corporate profit margins are historically high due in large measure to cost-cutting and low interest rates.

    I’m not the only one noticing these phenomena. Montier/GMO are now forecasting negative 7 year returns for the S&P. Other noted value investors have made similar observations.

    People (including, it would seem, the super duper brainiacs at the “market” – oops, I mean Fed) seem to be focusing only on one metric, the forward P/E. While that doesn’t point such a grim picture as these other, better, metrics, it doesn’t indicated a cheap market, either.

    Now I have little doubt that these “markets” will go up forever and ever, but if you thought this diagonal up march was ridiculous, prepare yourself for some true lunacy ahead as we start the next leg from such nosebleed levels.

  2. VennData says:

    The 10 year PE includes the Bush year’s near depression which had no earnings.

    • Concerned Neighbour says:

      Excluding years defeats the entire purpose of the CAPE (note the “cyclical” part).

      Wall Street perma-bulls are notorious for forecasting ever-increasing earnings. How many of the earning troughs in the following chart do you think Wall Street forecasted a year ahead of time?

      This is where cyclical measures like the CAPE and stock-like measures like the Q ratio add their value.

  3. We need to know markets will fall one day. One day, as Klarman says:

    “When will this happen? “Maybe not today or tomorrow, but someday,” he writes, then starts to consider what a collapse might look like. “When the markets reverse, everything investors thought they knew will be turned upside down and inside out. ‘Buy the dips’ will be replaced with ‘what was I thinking?’ Just when investors become convinced that it can’t get any worse, it will. They will be painfully reminded of why it’s always a good time to be risk-averse, and that the pain of investment loss is considerably more unpleasant than the pleasure from any gain. They will be reminded that it’s easier to buy than to sell, and that in bear markets, all to many investments turn into roach motels: ‘You can get in but you can’t get out.’ Correlations of otherwise uncorrelated investments will temporarily be extremely high. Investors in bear markets are always tested and retested. Anyone who is poorly positioned and ill-prepared will find there’s a long way to fall. Few, if any, will escape unscathed.””

  4. stonedwino says:

    BR you sound like you’re drinking the cool-aid man!

    Bearish sentiment is nearing record lows around 15%, never seen before.

    The market has been and is totally disconnected from reality and the real economy. That cannot continue.

    We have had new highs repeatedly for what, like two, three years?

    What happens to the game of musical chairs when the music stops and the Fed takes the entire punch bowl away?

  5. [...] Barry Ritholtz: No, new highs do not mean stocks have to crash (Big Picture) [...]

  6. Tamu82 says:

    They said all this stuff (Qs and PEs) in 1996…. Greenspan said “irrational exuberance”… what happened was 4 more years of gains. I think that is Barry’s point. Here’s a data point…. supply and demand. Low interest rates, where else can you make money these days but stocks? Will it end? Of course it will. But as Barry said, it won’t be because of the numerous highs since March 2013 when the Dow and SPX broke their Oct 2007 highs.