U.S. equities in denial
There is also a graphic which displays briefly in this segment that points out the U.S. equities were in denial at overly bullish levels through 2000 and 2007. This is all part of the reasons for the fund flows continuing to support the U.S. equities (much like 2007.) He is very pointed on valuations in the third CNBC video segment, more specifically explaining the extent of the overpricing of the U.S. equities.
Compared to reported earnings the price multiple is now 24. That was only higher one time, at 33 during the 1999 Dot.Com Bubble. At 24 it is already 20% higher than at previous peaks outside of that 1999 aberration. It is already above the peak multiples prior to the 1987, 1990 and 2007 tops. As such, he is skeptical of those who propose that there is going to be multiple expansion as a means to justify an overall higher U.S. equities trend.
His view is that this is a liquidity and fund flow driven market. This is primarily supported and exacerbated by the funds flowing into leveraged ETFs, with many ‘investors’ very comfortable with passive index buying. This is why he is not bearish on the entire market, as financial companies should benefit from the gradual rise in interest rates and reduced regulation. Yet in general, he feels the U.S. equities are overvalued, including the highly favored technology sector.
[Anyone wishing to see all four Rosenberg discussion segments can access them at www.cnbc.com and enter the search term ‘Rosenberg’.]
Not a major crisis looming
This does not, however, portend the sort of global economic weakness seen during the 2007-2008 Crisis, as he likes Japan and continental Europe; especially the German economy that is firing on all cylinders once again. `
As such, any skepticism toward the U.S. equities should be constrained to reflect the "over valuation" right now if the Trump reform and stimulus agenda are not faring well later this Summer. Once again referencing the opening front month S&P 500 future weekly continuation chart, barring any catastrophic fundamental-economic impact, there should be quite a bit of support back into all of the 2015-2016 congestion prior to the post-U.S. election extended rally. Of note, a classic full trend correction points to a target of roughly 2,200-2,100 satisfying a 10%-15% correction from the current 2,450 area trading high.
While corrections often either undershoot or overextend beyond that classic 10%-15%, it is interesting that the low-mid 2,100s is the trading area reflecting the strength of the U.S. equities prior to any more extensive growth expectations due to the Trump reform and stimulus anticipation. As such, it would be reasonable to expect that might be roughly the worst the U.S. equities would perform if the Trump agenda overvaluation were eliminated.
We shall see.
Thanks for your interest.
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