Long Term Market Analysis– All time high

We haven’t done this for some time and now that we hit a high in the US market, it looks like we are staring at a move down 50%.

Lets take a look at some data to systematically evaluate this.

A new secular trend?

US PE Ratio

So here is a strange one. By right we should be ready to be down  50-60%.  The interesting part is PE is going down.

Singapore PE ratio

I always said that forward earnings are the important factor. Don’t just look at PE as a ratio. Although we seem to be at a high, historical PE is at reasonable point at 14.6 times.

If earnings weaken and price goes on a good run we could see PE climbing.

Last quarter’s company results isn’t very strong.  An irrational price run can occur here too.

EPS trends

This cycle is interest in that EPS should validate stock market climbs. Here the data seem to say EPS climbs first then the market.

Another kind of bear market

The worry is a return to the bottom. However, a gyration up down 20% could be plausible for 5 years as well.

Age of rally


While we are in a 3.8 years rally, by no means is it lengthy. The returns are not out of this world compared to in the past as well.

But we are not far away from above the average. Will we reach a 1949 or 1990 case?

Pension funds under owned equities

While this equity market have been doing well, the pension funds are so spooked by the 2 bears in 2000 that they have been reducing equities exposure and into bonds. This is attest by the rising mutual funds levels to see that there are more money going in to the calculations then out.

The Sell side indicator model

This is interesting in the sense that I think this is not an accurate predictor on things, but perhaps shows the sentiment towards advocating stocks as an investment. Sell side are usually a good gauge of mass psychology towards irrational exuberance.

In this case it tells us rather there isn’t an extreme bullishness on equity.


What is the trend, markets are overbought right now. The challenge is when the correction comes. then people will start thinking about whether this is that 50% plunge.

My friend Musicwhiz tells me history don’t repeat but it rhymes. Some times the other factors make things different.

Investing is a matter of probabilities. If you ask me if we are expecting a bear I cannot say for sure.

What I have shown you is that both can happen.

[Hattip | Ritholtz.com]

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  • pavil1985

    Hi Drizzt, nice analysis i also notice that when the DJI, S&P index is trending higher the components PE ratio are either remaining the same or trending lower which makes it very interesting. Unlike experiences when market crashes the stock is usually stocks over bought pushing the PE up and every stock looks like a expensive buy.

  • Drizzt

    hi pavil, the PE can get escalated easily if speculation occurs in one year without much earnings growth. essentially in one of the chart its shown that is usually the case why PE expands because for a long period EPS was flat.

  • Jimmy

    Hi! Drizzt, we are moving somewhat into unknown territory. Central banks are keeping interest rates very low for a sustained duration and corporations are getting enormous profits by lower costs (reduced manpower costs – associated with high unemployment). EPS goes up and PE comes down. Furthermore, the money supply has been increased substantially, so logically, previous stock peaks will be surpassed once money in savings and that going to bonds find their way back into equities. It would be interesting to look at money supply and stock market PE and predict the stock market peaks. Based on this scenario, I think the bull market has a lot more legs. Of course, it will not be straight up. Then again stock prediction is the great humiliator.

  • Drizzt

    Hi Jimmy, lots of reasons to be optimistic and pessimistic at the same time.