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Warnings Signs Abound in This Market Rebound

April 22, 2019

While the market has performed pretty well so far in 2019, the threat of a sharp correction or bear market remains as present as ever because the market remains historically expensive.


The Shiller Price-to-Earnings (P/E) Ratio, which is the overall price-to-10-year-real-earnings ratio, is around 31, a mark not achieved too often in history. That means stocks costs 31 times more than their underlying earnings. In general, when the Shiller P/E Ratio is that high, it can lead to sharp corrections.


Similarly, the S&P 500 price-to-sales index is 2.1, the most expensive it’s been in history. And the Buffet Indicator, which measures market capitalization relative to Gross Domestic Product, is around 150, the second highest ever recorded.


This should have all investors concerned. Because while it’s still possible to find bargains out there, when bear markets awaken, usually everyone feels it.


Another warning sign may lie in the utilities sector. In the past when it’s been strong, market corrections and volatility tend to follow.


Well, the 3-, 4-, 5- and 6-week rate of change of utilities relative to the S&P 500 remains positive, meaning utilities are doing well when compared to markets overall. This could be a warning that recent gains may be illusionary and not longstanding.


Something is bothering the market. Whether it reacts remains to be seen.


Either way, the odds lean towards a decline soon – perhaps a major one. But that doesn’t mean it’s a sure thing. Still, even if it doesn’t happen, I’d rather be wrong and early than right and too late.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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