The markets are technically overbought in the short term. In addition, they are fundamentally overvalued. As of yesterday’s close, the S&P was overbought according to Granite Group’s technical indicators.
Fundamentally, the S&P is trading at 17 times 2016 earnings which is well above the historical averages. At this juncture, you should be cautious with additional equity investments. At the current market multiple, we do not see a huge upside. As we have said before, there will definitely be more volatility, but also better entry points and opportunities. On a slightly longer-term view , the S&P is trading at 15 times 2017 earnings. Assuming the current projections for 2017 are accurate, then it is possible for a slightly higher S&P in 2017.
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Yes, both technically and fundamentally they are over bought.With deteriorating growth prospects, fall in oil prices(which can drive SWFs mad and suddenly start dumping their shares), geo-political risks , increasing interest rate regime in U.S. and currency wars amongst countries to name a a few head-winds, a p/e ratio of about 12-13 should be reasonable which means the S&P IS OVER-VALUED BY ABOUT 25%.
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If future leading indicators continue on their path, that would be a possibility. Very much like 2010 -2011. At this moment 14-16 seems more reasonable which is still 5-10%. Please feel free to reach out to me directly at 203-210-7814
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