On the Road: S&P Perspective

  • by itradmin - Wed, 01/03/2018 - 16:43

Perspective is an amazing thing. Look at the first chart below. It shows the S&P 500 Index trend from 1980 to date using the monthly (raw) data and the 12-month moving average (12MMA). The rising trend looks exceptionally strong, especially compared to history. That is one perspective.

S&P500 Stock Prices Index chart

The next chart shows the same data but this time on a logarithmic scale (log scale). You see that the slope of the rising trend is quite normal and therefore a lot less scary. This is the better perspective in this instance. It does not mean that the market is undervalued or “priced right,” but it certainly no longer looks like a runaway train waiting to jump off the tracks.

S&P500 Stock Prices Index chart

Our message for this indicator is that a pullback in the S&P 500 is certainly possible in 2018, especially given our GDP forecast for 2019 and the current struggle to get profits re-accelerated in their rising trend(s). Flatlining profits would pose another danger sign for the S&P 500 trend in 2018 in addition to the current relatively high P/E ratios. It might be time to look at your high-risk money that it is reliant on a bull market environment and come up with a list that could be sold with those funds put in the “dry powder” column should the profits trend stall out.

Brian Beaulieu