mark ballard

Mark's Investment Blog

This blog is intended to keep clients and friends current on my investment management activities. In no way is this intended to be investment advice that anyone reading this blog should act upon in their personal investment accounts. There are other significant factors involved in my investment management activities that may not be written about in this blog that are equally as important as the things that are written about that materially impact investment results. Neither is this blog to be construed in any way to be an offer to buy or sell securities. To be notified via e-mail when new posts are made, CLICK HERE TO SUBSCRIBE

Holly Jolly Market





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As we head into the next week full of holidays and thin stock market trading action, I thought we would take a look at various stock market statistics to give us a feel for where the market is and where it may be headed.

From a valuation standpoint, the market is overvalued.  The graph above shows you the P/E ratio of 37.47 last week compared to the historic median P/E ratio of 14.83.  This is the third highest reading on record after the 2000 Dotcom stock market crash and the 2008 Subprime Loan stock market crash.  This tells me that caution is advised.

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Another valuation measure shown above, the Price to Book ratio is at 4.12 compared to its median reading of 2.78.  This is the highest reading since late 2000 and also advises caution.


Another valuation measure shown above, Price to Sales ratio is at a record high 2.71 compared to its median reading of 1.50, again advising caution.  The above three graphs are courtesy of Robert Shiller’s website.

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The above grid gives you several other valuation measures with most of them at the 100% percentile reading, or record highs, advising caution.  The credit for this graph goes to Cresent Capital.


From a sentiment standpoint, based upon the Equity Put/Call Ratio, we are at record levels never before seen.  This ratio measure the amount of bullish stock option buyers compared to bearish stock option buyers, and at the moment it appears almost all are bullish.  This also advises caution because any change in sentiment can cause a volatile reaction in stock prices at all those bulls try to stop the losses in their options and sell, leading to selling in the underlying stocks.  This graph comes credit of Charlie Biello.


Another sentiment measure is the amount of cash available to continue to fund stock purchases.  The graph above shows that cash levels are low since everyone is bullish, and we are levels that in the past have led to stock market corrections.  This graph comes courtesy of Bank of America and also advises caution.


Our final sentiment graph shows you the Bull/Bear survey results of the American Association of Individual Investors.  This graph shows you the level of bearish investors compared to the S&P 500 Index.  You can see the steady drop in the height of the red lines as the number of investors bearish this market since summer.  Too many people bullish, as noted above, give us caution.  This graph comes from Helene Meisler’s blog.

So what am I thinking?  We need a healthy correction, maybe in January in the post-Santa Claus Rally period, so that the speculators are shaken out of the market and the investors can take advantage of lower prices for the long term.  However, any correction looks – at least at the moment – like it would be short-lived.

The graph below comes from Clearbridge and gives you a dashboard look at the economy.  All of the factors, as of the past three month-ends, are supportive of a growing economy except Investor Sentiment (they also are noting that too much positivity can lead to stock market corrections and potential recessions) and Initial Jobless Claims are showing caution.


Because of these factors, the likelihood of a healthy economy in months ahead means that post any correction, we should see a healthy rebound in the market possibly to new highs that are supported by improving corporate earnings.  This years rally has been all valuation expansion and not earnings driven.  A correction will bring those valuations back in line with recent (pre-covid) levels and growing earnings should propel the market forward.

Obviously we do not have a crystal ball, so as we saw in 2020, anything can happen.  Barring the economy closing down again, and our pulling out of the covid recession, we should see a healthy post-correction stock market in 2021.

Take care and Merry Christmas!




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