The Exuberance Is Global
How over-bought are equities at the moment? Developed market equities around the world are trading at their all-time highest levels, in terms of the percentage of companies trading above their 50-day moving average. See below.
Close 
Not only are equity markets over-bought in the short-run, but there is a more concerning valuation development that is evolving.
Are Equity Markets Overpriced?
Our second chart below shows trailing and forward P/E ratios, for the S&P 500, are.... ummmmm...elevated. Forward P/E ratios near the peak of the dot-com era, combined with historical over-bought levels, starts to indicates a bubble environment.
At the very minimum, the chart below suggests multiple expansion is unlikely to be the primary driver of equity returns going forward.
Close
If the equity rally does continue, we will likely be looking at a change in leadership going forward.
Change of Equity Leadership? An Updated Look at 200 Day Moving Averages.
Close
Emerging markets and Europe have recently been outperforming the S&P 500. Within the U.S., Value has recently been beating Growth, and Small/Mid-Caps have been topping Large. The chart below shows that these recent “hot” areas are due to mean-reversion (i.e., playing catch-up).
The relief rally has migrated from high quality balance sheets to most levered balance sheets. Concerns about extremely high valuations and very poor macro-economic fundamentals, are being ignored.
This is a difficult investment environment, as these unusual insatiable risk situations do not occur often. It's hard to even guess who might be the next leader. How long can it continue?
Esoterica's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. For full disclosures, click here.
