The S&P 500 Intrinsic Value Index is $1,842. This is the level at which Value Investors historically enter equities as the long term earnings capitalized by the US GDP trend is how many Value Investors assess valuation. The recent swoon as a result of Hedge Fund unwinding hyperinflation bets on oil and commodities due to excess Fed liquidity. Inflation has remained well under 2%(1.7% currently).
Putin’s invasion of Ukraine has resulted in a flood of capital into the US, driven down 10yr Treasury rates last spring causing them to drop from 3% in Dec 2013 to 2.5% in May 2014. In turn this caused the US$ to strengthen and liquidation of hyperinflation bets began June 2014-US$ began to strengthen more rapidly as oil and commodities weakened. Today’s equity turmoil is the result as too many had made a bet on what appeared to be a sure thing.
One must never underestimate the impact of one-sided thinking when it comes to smart people thinking that they are so ‘really smart’ that they make overly illiquid short term investment decisions.
Long term employment, retail sales and etc continue to signal economic expansion. Equity markets have always tracked economic expansion. After the dust settles, we should expect higher equity markets.
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