The Dow, the SPY, and the QQQ all hit new all-time highs up another +.75% on average and look frothy.
Emerging markets and precious metals broke out of classic chart patterns to the upside and look poised for more.
The big question confronting the markets is whether the Federal Reserve and the Central Banks of the world are losing control and the next phase is an inflationary spiral.
This, of course, would at some point put intense pressure on the Central Banks to increase rates and tank the equities markets globally.
This week’s highlights:
As we hit new all-time highs this week in three benchmark indexes (DIA, SPY and QQQ) we are also trading at extremes of momentum as we enter the new year and decade.
The market narratives that have been in place for the past 9 years often reverse as we enter a new decade, and new macro themes appear. The keyword is “often” so one must be prepared for any outcome, use solid methods based on the stats with a risk overlay. That means, let the market action determine the game plan with complete flexibility.
It has never been more critical as the market could be construed to be at an extreme. Looking at the big picture, one could point to Warren Buffet, who is sitting on a 128 billion cash hoard (as of November 4, 2019) as a sign of just how much the market is overvalued. Buffet’s key metric which looks at the ratio of the GDP versus the stock market’s value is more inflated than in 2000, just before the meltdown.
In fact, based on this metric, US stocks are projected to yield -2.9% a year from this valuation after dividends.
On the other hand, one could look at the current picture and certainly see US equities at all-time highs with market phases intact on all time frames, poised for more upside and a melt-up.