Logic Says We Go Up from Here

The Federal Reserve has only raised interest rates once, when the S&P 500’s P/E ratio was this high and this was in 1999. Today, the index is comprised of many technology companies, which don’t strive to grow only EPS (earnings per share), or the bottom line, but are focused on the top line and on gaining market share, before they ever make the transition to turn profitable.

Therefore, this next chart doesn’t scare me all that much:

Courtesy:, BofA

You can see below how in April 2021, the markets began to switch from a healthy state to a market that’s appreciating on the backs of its largest components, but now that’s gone as well.

Investors are not in any rush to buy, but if they just see that rising interest rates don’t spell the end of the world to the stock market, investors will begin to regain confidence.

We see that shift in sentiment coming towards May or June, at the earliest.

The markets need to really see that inflation isn’t killing profit margins for companies and that inflation isn’t going to slow down hiring or to deter consumers from making purchases.

Courtesy:, Bloomberg

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    The FED has left no doubters in the room, as to how seriously they consider the role of higher rates in helping the economic cycle normalize and move to sustained and organic growth.

    The markets are entirely convinced the FED isn’t lying or pretending.

    In fact, the bond yields reflect a nearly 50/50 chance that the FED is about to embark upon an historic decision and hike by 50bps at the outset.

    I don’t like taking 50/50 chances, so I won’t call it either way, but I’ll say that I do think it doesn’t matter in the bigger picture.

    What really matters is what the government is doing about supply chain constraints, port congestions and about shortages; anywhere you look, there are shortages…

    Courtesy:, Bloomberg

    In fact, these types of situations have cost Biden much of his popularity and while I don’t know if Americans are ready to accept Trump back, his supporters are already polling heavy!

    Courtesy:, Bloomberg

    Lastly, keep watching gold here!

    The metal looks strong and no one is making a fuss over it, so it’s still hated, cheap and in the early parts of an uptrend.

    So, while there’s ZERO REASON to be bullish on stocks, I am very bullish.

    Best Regards,

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