Can the Stock Market Go Higher?
Big news of today was that the stock market reached new highs for 2016. People are wondering whether the market can go even higher, especially with Janet Yellen “motivational” inference that the interest rate may not be increased as much as originally projected.
Yes it is true that Yellen had a lot of influence on the market increases the past couple of days, and this has been one of the quickest rebounds in recent history, and that the overall P/E is close to all-time highs (since the 2008 recession).
All signs point to a very overpriced market (as pointed out in my last posting), however there is one remaining sign that actually points to an undervalued and continued bull market…
The overall forward P/E, as a percentage of trailing P/E, is at its lowest point in years. This is important to note because it suggests the market is currently trading at a relatively low value compared to projected future earnings. Assuming these future earnings are accurate, we could be in for a continued bull market over the long-term.
It’s always a wise decision to hold both bullish and bearish positions, adjusting the ratio of the two according to market valuation. So although trailing P/E is nearing highs, future earnings are increasing at an even faster pace.
Bullish in undervalued companies; bearish in overvalued companies… always.