The US market is expensive, and that makes a lot of investors nervous, including me.
1. The market is still expensive. But the street will tell you that valuation is never a timing tool. Market can stay overvalued longer than you are broken.
The sp500 forward PE is 20.5 now, vs. 22.1 at the begining of the year. the market valuation is cheaper and is not as extreme as it was back in 2000.
2. Back in 2000, market was not broken down by valuation itself. in fact it makes a new high in (about) May in anticipation of BUsh's tax cut. It was the recession that finally broke the animal spirit.
3. Let's not forget the potential improvement of tariff tension and trump's tax cut. Now let's talk about the Tariff. Can we say that the tariff war will get better going forward. We do not know when, but we can assign a very high probablity that the end of tariff war will be much better than it is now. in addition to the possible improvement of tariff war, there is a trump tax cut. Until all the good news are out, it is hard for me to bet that the market will see another steep sold off. I would buy every dip.
4. Here comes the possiblity of recession. If the tariff standoff stay too long, or escalate to the next level, it is very likely that the US will have a recession. Based upon this, I would guess, as a rational person, Trump knows that he will be benefit politically from de-escaltaion.
5. My guess it that once all good news are out, investors may start to seriously assses the likelihood of a recession.
In short, at this point, market is very volatile, but a big, and persistent downward development may not be warranted statistically.
at last, this is not a recommendation of trades.
