Why You Should Be a Cautious Bull
By John Persinos
For my trading service Marijuana Profit Alert, I analyze investment opportunities among pot stocks. However, my preferred psychoactive compound for personal consumption isn't tetrahydrocannabinol. It's caffeine.
Today, as I guzzle coffee (it's legal in all 50 states!) and write this issue of Mind Over Markets, my caffeinated synapses are focused on rising risks to the equity rally.
The stock market over the past two weeks has hit multiple all-time highs, but the 12-month forward price-to-earnings (P/E) ratio for the S&P 500 currently hovers at about 23, above the five-year average (18.9) and above the 10-year average (17.6). Stocks have gotten pricey, especially among the Big Tech players.
Persistent robustness in the labor market, coupled with falling inflation and resilient consumer spending, are supportive factors for the bull market. On the other hand, worsening geopolitical turmoil, stretched equity valuations, dysfunction in the U.S. Congress, uncertain Federal Reserve policy, and rising bond yields should make you cautious.
In the coming days, corporate earnings will occupy center stage. Though the economic data calendar appears sparse this week, over a fifth of the S&P 500 constituents are poised to unveil earnings.
About half of the index's companies have already reported fourth-quarter 2023 results, which have been generally promising. Most of the mega-cap technology companies, in particular, have beaten expectations on the top and bottom lines.
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