Just after many market experts called the end of
the Trump rally for the US stock market, the rally resumed February 9th
after Donald Trump announced “phenomenal” tax cuts, due in several weeks. All
three major American indices, the Dow Jones Industrial Average, the
S&P 500 and the Nasdaq Composite Index have recently been posting
their all-time highs for several days.
Dow Jones
Industrial Average over 6 months (source:
marketwatch.com)
Janet Yellen, the chairwoman of the Federal Reserve,
put it very clearly on Feb. 15: “I think market participants likely are
anticipating shifts in fiscal policy that will stimulate growth and perhaps
raise earnings.”
These anticipations are very strong right now and they are overshadowing
any sense of caution. Market participant complacency right now, as indicated by
the Price to Earnings, or P/E, ratio of stocks (how much higher the price per
share is relative to the earnings per share for stocks) which is currently quite
high. According to FactSet's John Butters (via businessinsider.com), the
S&P 500's 12-month forward price to earnings ratio is currently at 17.6
times, the highest level since June 23, 2004.
At the same time, investor caution, as indicated by
the VIX index (an indicator of how volatile the market is, often called the fear
index) has been sanguine for more than three months.
CBOE
Volatility Index (VIX) over 3 months (source: marketwatch.com)
This suggests that investors appear to be throwing
caution to the wind, and bidding up stock values. This would also suggest
markets are overbought, but these conditions often persist for long periods of
time.
Ukrainian Credit Union Limited
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