Stock Market Bulls Are Running Without a Breather

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Stock Market Valuation

• Note that the valuation charts presented below are not short-term sell signals; they provide a long-term perspective (a yellow/red flag) for investors and traders alike.

• Updated Shiller’s Cyclically Adjusted PE (CAPE) Ratio is among the highest in history and close to the 2021 high.

• The chart below may be a better measure as it includes the average of several valuation metrics, including CAPE.

• When valuation is at historic highs, I pay attention. What can go wrong?

Sentiment & Technical Analysis

• The Fear and Greed Index has difficulties getting out of Fear. It is puzzling; things do not add up.

• The chart below illustrates internal technical market strength and recalls the 1998-1998 bubble period.

• At that time, 70% of stocks were underperforming the S&P 500, led by the market’s “darlings of that period.”

• Then, in the early 2000s, about 65% of stocks outperformed the S&P 50. In most cases, that outperformance manifested in most stocks falling less than the market's “darlings.”

• Will history repeat in 2025-2026? It is TBD, but it might. Magnificent 7's and similar stocks' extreme outperformance may revert to the mean, especially if their earnings growth slows.

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