By comparison, the S&P 500's Shiller P/E ratio, which is also commonly known as the cyclically adjusted P/E ratio, or CAPE ratio, is based on average inflation-adjusted EPS from the previous 10 years. Examining 10 years' worth of earnings data smooths out the impact of shock events and leads to apples-to-apples valuation comparisons.
As of the closing bell on Nov. 25, the S&P 500's Shiller P/E reached 38.20, which is or more less a high reading for the current bull market, and more than double the 153-year average of 17.17, when back-tested to January 1871. More importantly, this marks the third-highest Shiller P/E reading during a continuous bull market over the last 153 years.'
The only two times the stock market has been pricier than it is now was prior to the dot-com bubble bursting, which saw the S&P 500 and Nasdaq Composite respectively lose 49% and 78% of their value, and during late 2021/early 2022. The Dow, S&P 500, and Nasdaq Composite all endured bear market declines in 2022, with the Nasdaq, once again, getting hit the hardest.
And it's not just the Shiller P/E that's foreshadowing trouble for Wall Street. The valuation tool Warren Buffett once touted as "probably the best single measure of where valuations stand at any given moment," hit its highest reading ever in November.
The "Buffett Indicator," which divides the market cap of publicly traded companies (via the Wilshire 5000 Index) into gross domestic product (GDP), topped 200% for the first time ever in October and nearly reached 206% this month. The average for the Buffett indicator since 1970 is about 85%, with peaks of 144% prior to the dot-com bubble and 107% before the financial crisis.
These historically accurate indicators suggest President-Elect Trump may oversee a sizable stock market correction.
QQQ
Here is a classic textbook unfolding Elliott Wave via the QQQ NASD 100
- There are a clear five waves.
- The fifth at this point is much shorter than the first wave suggesting this has further to go.
- RSI exceeded 70 at the top of the first wave and during the third wave, the third is the strongest wave so again textbook.
- Alternation exists. Wave 2 was sideways, Wave 4 a much deeper correction.
- Wave 5 registers a lower RSI than 3, it should. Again it is above Wave 3 but looks to have further to go. That makes sense I am not aware of a big downturn ever starting in December.
- All this aligns with a late December or January top ala 1973.
I was thinking again of the 1973-4 disaster, INDU down 50% in two years. The smaller stocks were just wiped out. Many brokerages were bought or had to merge to continue to exist. DuPont and Walston (one firm by then) went down altogether and were sold piece meal to other firms. It too until 1979 but then wire house Shearson bought storied Loeb Rhoades, oh perish the thought. Back then the snooty North East firms demanded to be listed at the top of the tombstone ads. These ads recorded that IPOs had been made and listed the underwriting group. First Boston, later acquired by Credit Suisse, was always on the first line.
| 1973-01-01 |
1026.82 |
| 1973-02-01 |
974.04 |
| 1973-03-01 |
957.35 |
| 1973-04-01 |
944.10 |
| 1973-05-01 |
922.41 |
| 1973-06-01 |
893.90 |
| 1973-07-01 |
903.61 |
| 1973-08-01 |
883.73 |
| 1973-09-01 |
909.98 |
| 1973-10-01 |
967.62 |
| 1973-11-01 |
878.98 |
| 1973-12-01 |
824.08 |
| 1974-01-01 |
857.24 |
| 1974-02-01 |
831.34 |
| 1974-03-01 |
874.00 |
| 1974-04-01 |
847.79 |
| 1974-05-01 |
830.25 |
| 1974-06-01 |
831.43 |
| 1974-07-01 |
783.00 |
| 1974-08-01 |
729.31 |
| 1974-09-01 |
651.28 |
| 1974-10-01 |
638.63 |
| 1974-11-01 |
642.10 |
| 1974-12-01 |
596.50 |
The final low that 12/74 was 577.
Another similarity now and then was the Presidential election. This time Harris managed to eek out 226 helectoral votes.
But look at the map. Seven totally Dem controlled states got her those votes, OR WA CA IL NY VA, and okay MA.
In 1972 Nixon took victory 520 to 17 as the Dems did not control those seven states. Republicans were Governors of California, an impossibility now.
Okay understanding that Trump stunned the liberal press, just as Nixon's come back in 1968 ha done the same. Note, he had lost the Presidential race in 1960 to Kennedy and then lost the CA Governor race in 1962 saying you, the press, won't have Nixon to kick around anymore.
The similarities of Trump and Nixon
Two unlikely comebacks by each of them
Both were hated by the mainstream press
Both inherited a stock market at new all time highs, just as Herbert Hoover did in 1929.
Another similarity, Hoover won 444 to 87 over Al Smith.
Hoover was creamed in 1932, 472 to 59.
Nixon had the hated Viet Nam war. Trump inherits two wars in the Mid East and Ukraine, not as big an issue now as then.
Nixon was continually investigated over the Watergate break in just as Trump was law fared in no less than four jurisdictions. Trump appears to have dodged his legal problems for now.
Trump's pick for AG died quickly. Defense and National Security don't look much better. Robert Kennedy, hard to say.
Even now the polarization continues with CA and CO Governors vowing to oppose all things Trump.
My point being things can change quickly. I don't think the stock collapse was Hoover's fault but the voters rejected him one election later with about the same lopsided result but opposite the next time.
Social mood can change on a dime and is unremembered.
__________________
A further thought, what could go wrong?
How about invade Mexico.
The US tried before during WW I with General Pershing, we lost.
- Carranza rejected the proposal of a military alliance with Germany, made via the Zimmermann Telegram, and he was at the same time able to prevent a permanent military invasion from the U.S., which wanted to take control of Tehuantepec Isthmus and Tampico oil fields.[2][3][12] Mexico was producing 55 million barrels of petroleum by 1917.[13] Carranza gave the order to destroy and set fire to the oil fields in case of a U.S. invasion.[12][14]
- Carranza's troops confronted and defeated John J. Pershing in the Battle of Carrizal. General Pershing was furious at this result and asked for permission to attack the Carrancista garrison at Chihuahua. President Wilson, fearing that such an attack would provoke a full-scale war with Mexico, refused. The Battle of Carrizal marked the effective end of the Punitive Expedition.