Another record made at Wall Street boosted by stronger Morgan...

Another record made at Wall Street boosted by stronger Morgan Stanley earnings and better than expected weekly jobless claims.

It is likely we would see DJIA scale to 30k , then it could face the psychological resistance.

You have to decide if this is the start of the party or a near end to it, but at this rate it is looking overstretched in the short term.

Missing out? Not missing out going to a party on a boat that is only certified to carry 100 passengers but taking on 200 in waters circling with sharks. We heard there are some leaks on the boat too but can't verify. But yeah everything is a gamble, as long as you know it is one!
Stocks are the most overvalued since at least the 1980s based on one measure

PUBLISHED THU, JAN 16 202012:54 PM EST

KEY POINTS

• The price-earnings to growth ratio, commonly called the PEG ratio, sits at its highest level since Bank of America started tracking the data in 1986.
• “We have pulled forward some of the gains from later this year, and could see some multiple compression,” the firm’s equity and quant strategist Savita Subramanian said in a note to clients Thursday.
• The current simple price-to-earnings ratio is at 18.4 times, hitting a level the ratio hasn’t seen since 2002.

What investors are willing to pay for stocks relative to their long-term earnings growth expectations is at an all-time high, according to Bank of America.
The price-earnings to growth ratio, commonly called the PEG ratio, sits at 1.8, its highest level since the firm started tracking in 1986.



The general rule of thumb is a PEG ratio over one means a stock or a market is overvalued. PEG is a stock’s price-to-earnings ratio divided by the expected long-term growth rate in earnings per share.


The idea is to show whether stocks are cheap or expensive relative to how much earnings are expected to grow over time. This ratio shows either stock prices need to fall or earnings need to grow much faster than expected.


The S&P 500 has rallied nearly 9% since November, shrugging off tensions with the Middle East and tariffs on Chinese goods.

“The S&P 500 is running on fumes,” Bank of America equity and quant strategist Savita Subramanian said in a note to clients Thursday.
“We have pulled forward some of the gains from later this year, and could see some multiple compression,” Subramanian added.

Look to Amazon and energy stocks for why there has been a pullback in earnings growth outlooks for the year, Bank of America said.
Last quarter, Amazon’s stock got clobbered when its earnings fell short of expectations. The e-commerce giant missed on its cloud business’ sales, which could be a drag on future earnings as it has provided the bulk of Amazon’s operating income for the past four years. Plus energy stocks, the worst performing sector of 2019, are struggling to grow profits as high operating costs and lower oil prices continue to eat into revenue.
Other metrics are also near extremes, including the most common way to value stocks.
Price-to-earnings ratio at 18-year high

The current price-to-earnings ratio is at 18.4 times, hitting a level the ratio hasn’t seen since 2002, according to Bank of America. This means that investors are willing to pay more for each dollar of earnings than they have in nearly two decades. This too signals that investors are expecting a bigger-than-expected jump in earnings that may not come.
The S&P 500 is less than 1% away from Bank of America’s 2020 year-end target of 3,300.
Bank of America is not the only Wall Street firm worried about stocks being overvalued. Goldman Sachs pointed out to clients last week that the stock market relative to the size of the economy, or the U.S. equity market cap-to-GDP ratio is at an all-time high. Plus, the cyclically adjusted price-to-earnings ratio, created by Nobel Prize winner Robert Shiller, is near the highest since 2000 dot-com bubble.


As Chris Vermeluen writes:

Even as we write this post, the US Stock Market continues to push higher as global traders and investors pour capital into the continued US rally.  The strong US Dollar continued to attract capital from around the globe and with fresh earning about to hit from Q4 2019, investors are expecting another round of solid income and earnings growth.
Yet, underlying all of this is the undercurrent of shifting capital into safe-havens like precious metals, Cryptos, and under-valued foreign markets.  This shift started to happen late in Q4 2019 and accelerated early in 2019.

HYG – HIGH YIELD CORPORATE BONDS DAILY CHART

One of our favorite measures of extreme bullishness is the scope of capital/trend pouring into High Yield Corporate Bonds.  This chart below highlights the scale of the rallies that take place before a price reversion event.  You’ll notice that each rally in HYG is nearly identical in size – and that each rally is followed by a fairly deep price reversion event.

The likelihood of some surprise earnings collapse from Q4 2019 is somewhat muted.  Other than the retail sector reporting some missed earnings expectations related to Christmas 2019, generally most market sectors should report earnings and growth near an average 2% to 3% growth expectation annually.
Still, with Rhodium, Platinum and Palladium rallying extensively and Gold and Silver recently setting up an upside breakout pattern (see our recent Gold and Silver research), we believe undercurrents are already at play in the markets where skilled traders are preparing for a price reversion event – attempting to mitigate risk.
Over the past 20 years, the DOW JONES INDUSTRIAL has been positive in January by a ratio of 1.2:1.  In other words, the odds of a positive January for the DOW is near 60%.  The average upside price advance in January for the DOW is a little over 600 points.  As of right now, the DOW has advanced a bit over 525 points since the end of 2019.  We believe the undercurrent trends may result in a moderate price reversion event if our analysis is correct.