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Invest Now or Wait for a Stock Market Crash?

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The US stock market is exceptionally high, but Investors think the market will do well over the long term. Buying stocks at this level of valuation has led to losses and low interest rates can’t help this market much more. A re-rating drove the recent strong performance, expect 3%, not 16% per year over the next 5 years.

In this video I cover:

The US stock market is exceptionally high

  • US stock market is super high, but red light is not yet flashing
  • My Red light, Green light tool is not yet flashing red
  • Stay invested in the US market, but know that it is approaching a peak

Investors think the market will do well over the long-term

  • The US stock was up 16% from 2009 to 2020 and is up 63% over the past three years
  • Most investors I surveyed, expect 5-10% return over the next 10 years

Buying stocks at this level of valuation has led to losses

  • Based on three common valuation measures the US stock market is at peak valuation
  • When investors bought at these levels in the past, they had about a 3% average annual loss over the following five years

Low interest rates can’t help this market much more

  • 40 years of falling interest rates and the recent decade of rock bottom rates has supported the rise in the PE multiple
  • These low rates have driven the price-earnings ratio to an all time high of 36x
  • Low interest rates can’t help this market much more

A re-rating drove the recent strong performance

  • Stock market return is driven by inflation, dividends, growth in a company’s book value, and the Dream factor
  • Dream factor shows what investors are willing to pay for future earnings
  • The largest part of return over the past 2 years came from the Dream factor; in the past, when it was high forward return was negative

Expect 3%, not 16% per year over the next 5 years

  • Based on the various factors presented in this research we expect US stock market returns to be pushed down over the next 5 years caused by a collapse in the Dream factor
  • Expect 3%, not 16% per year over the next 5 years

 

DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.

Posted in Global Markets, Research, Strategy