The monster rally at the S & P500 is close to recording the best two months at the beginning of the new year since 1991, but the market seems to ignore the economic reality.
While we can see enough bear signals on the market - from slowing world growth to lowering forecasts for reports, fears of recession, and possible Fed moves - stock values look too high, suggesting that the listed risk scenarios will be overtaken by a positive way. This is shared by Tom Essaye, founder of Sevens Report Research.
"In terms of market values, the market is rising, reflecting a positive macro environment that we do not actually have at the moment, and this as an analyst fundamentally motivated by the foundation worries me a lot." - says Tom
The discrepancy between fundamental reality and market values has long led a lot of Wall Street investors to wonder about this issue and, above all, how sustainable this recovery is in an environment of understated economic growth forecasts and reports. The growth forecasts of the companies included in the S & P500 are negative for the first quarter, and the expectations for GDP growth have gone below 2% over the same period.
Many say that what moves now are the hopes for the upcoming US-China deal and that the Fed will hold its "patient" position for a longer time.
"Or, markets will" go down "to realistic expectations for the economy, or growth and profit forecasts will have to improve to justify current market levels." - says Torsten Slok, chief economist at Deutsche Bank.
"It's going to be all right" seems to be the mantra on the market in recent months, but if things do not happen as expected, the S & P500 would drop by between 5 and 10%, Essaye says.
Source: CNBC
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