That's 3.5 times more than the S&P 500 was valued at just 10 years ago. That would imply economic growth of 35% a year for the past 10 years so kudos to all the believers although, to be fair, we thought the market was toppy at 2,850 last year and we're really only up 150 (5%) since then so let's not get too excited that we're finally hitting 3,000 after trying for 18 months.
All the heavy lifting, from 666 to 2,500 (275%) was done under Obama's watch and the economy was doing so well that the Fed was tightening and reducting their balance sheet. 30 months into Trump's turn in office and the Fed is hitting the panic button again, reversing course and actually going back to cutting rates to help stabilize an economy ravaged by rampaging deficits, political instability and pointless trade wars.
And that's considered the "GOOD" news that traders are embracing from Powell's comments as he stretches to justify bowing to pressure from the President to lower rates despite all the prosperity the President claims we are enjoying. Of course it makes no sense – but is that a reason not to pay all-time high prices for stocks? $1Tn for Apple (AAPL), $1Tn for Microsoft (MSFT), $1Tn for Amazon (AMZN)… sure, why not? After all, what's a Trillion anyway – we run up more than that in debt every 12 months now.
We're on a path towards making money meaningless so why not spend it on over-priced equities? As you can see from the chart above, it's been a pretty much straight up 10-year run with only 6 noticeable corrections so once every 18 months we average a pullback on our 350% run. No wonder so many people are trained to buy any dip – it's been a winning formula since Generation Y got out of college – they don't know any better.
As you can see from the chart, AMZN stock is up 40x since the 2009 lows and their revenues were $27Bn back in 2009 and now it's $232Bn so that's up 7.5x and they didn't have profits then and now they are making $10Bn so why not pay $1,000,000,000,000 for the company – it's only 100x the current earnings and 4x revenues… As Keynes said "The market can remain irrational longer than you or I can remain solvent" so we don't bet against AMZN – we just sit back and watch the show.
Figures from FactSet, a financial research company, showed that, on average, S&P 500 companies’ Gross Profit (which discounts overheads) fell by 2.6% in the second quarter of the year relative to the same period in 2018. Of the 114 firms that reported results in the period, three quarters issued pessimistic turnover expectations. The first three months also witnessed a decline in gross profit relative to the previous year, marking the first time since 2016 that the American market saw two consecutive quarters of falling profits. The S&P 500 index rose by 18% over the same period.
Meanwhile, we don't seem to be able to beat them, so we might as well join them and go along for the ride. While AMZN may be over-priced, MSFT is not too terrible at 30x earnings and Apple (AAPL) is a downright bargain at 12x earnings as are IBM (10x), CSCO (20x) and, of course, Intel (INTC) at 11x because those robots are going to need brains in order to kill humans and they are going to need to get their instructions over the WiFi as to which humans to kill with software from MSFT and hardware from IBM and design by Apple (something that looks good covered in human blood) so we're all on the right side of the Robot Revolution when it comes.
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