No. of Recommendations: 11
So, I guess it's a bull market. The 99 day rule is reset to day 0.
https://stockcharts.com/h-sc/ui?s=$SPX&p...It also seems to be an expensive bull market. I track smoothed real earnings for US stocks, same idea as the E10 in CAPE but just smoother. On that metric, the S&P 500 and its predecessors has been more expensive than this about 3.1% of weeks since 1916, 108.5 years ago. Using one data point per week, all of those exist in three stretches:
124 weeks 1998-03-20 through 2000-12-08, the tech bubble top.
40 weeks 2021-04-09 through 2022-01-14
15 weeks 2024-10-18 through 2025-02-21
And now, of course.
Using my smoothing and scaling, the trend earnings yield is currently 2.84%, equating to a P/trendE of 35.2.
A quick-and-dirty but surprisingly good fit to the data since 1990 is that the forward ~7 year real total return is usually in the range of 5 times the starting trend earnings yield, minus 15%. (That's with the endpoint smoothed, so in effect the average CAGR across all hold periods in the 4-10 year range). If that rule had any merit, it would suggest a ~7 year real total return from the S&P 500 of about -0.8%/year.
We live in interesting times.
In the tech bubble, the US was the miracle stock market and money poured in from across the globe, driving the dollar up. Much like the recent bull market. The trade weighted dollar index rose from about 81 in spring 1995 to peak around 121 in 2000-2002. When the optimism faded, the portfolio flows did too, and so did the US dollar. The index fell from 121 to about 85 by end 2003, and continued on down to below 72 over the next five years.
I mention this because it raises the question of what effect, if any, changing international portfolio flows might have on the US dollar value in the next few years. In 2011-2022, the hardest charging part of the recent bull market, the US dollar index rose from 74 to 114. It has pulled back to 97. Purely from a chart, a drop to ~80 seems entirely possible if the things holding it up no longer apply. So, for example, an index rise of 20% from here over the same time frame might mean an increase in wealth (general purpose purchasing power) of zero.
Jim
