Bull Market? Sell the Front Page, Buy the Back Page
We are always on the lookout for market views and commentary. Below, we present commentary from a friend of Alpha Architect who is an avid market observer with a good track record at a multi-billion dollar fundamentals-based hedge fund:
A 10% correction anytime for any reason is always possible, but current conditions look favorable: US economic growth is solid and accelerating; no inflation; extremely accommodative Fed, BOJ, and now ECB; Tiny bonds yields giving a very low discount rate to the DCF. Pretty skeptical market participants, too. Less so in the last two weeks, but that is a very recent change. I think the bull run can go on.
For all the talk of massive equity market bullishness, when one sees former uber-bulls like strategist David Bianco at Deutsche Bank calling for a year-end move in the S&P to 1,850 or a 5.2% decline from here, the positive sentiment is hardly universal as it usually is at market tops. To be sure, price-to-cash flow ratios are back to or above 200 and 2007 levels in many markets, but at the same time, central banks are keeping liquidity conditions flush and dividend yields command a premium to mid-term bond yields in many countries. At the same time, when “Stocks Climb to Fresh Record Highs Amid Central Bank Hopes” makes it to page 21 (!) of the FT, “Dow and S&P Reach Highs on Reports of Merger Deals” on B4 of the NYT, or “Deals Lift Stocks to Records” on page C4 of the WSJ, this remains a bull market that nobody is very excited about – remember the axiom that you want to sell the news on the front page and keep buying the news buried in the back up until it makes it to the front page.
Who thinks this bull has legs?
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