Related Topics
Stocks , Investing
     

Should You Prepare Your Portfolio for “The Roaring 2020s”?

After all, market valuation measures such as PE have reached an extreme

by Bob Stokes
Updated: December 15, 2020

Well, the answer posed by the question in the title is a resounding "yes!" -- according to the British financial magazine, MoneyWeek.

The cover of the Dec. 4 issue of the magazine is titled "The Roaring 2020s, Prepare Your Portfolio for a Boom." An image of Janet Yellen is front and center. Of course, she's the former Federal Reserve chair and the reported pick for Treasury Secretary in a new administration. She's dressed in a 1920s party outfit and looks very festive.

Yet, stock market valuations are different when you compare the start of the 1920s with the 2020s in the U.S. Here's a quote from our recently published December Elliott Wave Financial Forecast:

As the bull market began in August 1921, the S&P 500 price-to-earnings ratio was 14. In September 1926, three years before the 1929 peak, the market's p/e ratio was 10.72, even more subdued than in 1921. By the time that September 1929 arrived, the market's p/e ratio had jumped to 20.17. At the February high this year, the S&P 500's p/e ratio was 25.43. By December 1, it was an even higher 36.67. Other market valuation measures are just as extreme.

Even so, the extreme optimism conveyed on the MoneyWeek cover is also reflected in a recent survey of market strategists. Here's a quote from a Dec. 8 CNBC article:

A majority of analysts surveyed by CNBC expect [an] 8%-22% upside for the S&P 500 in 2021.

There are other signs of extreme bullish sentiment.

Here's just one of them as we return to the December Elliott Wave Financial Forecast with this chart and commentary:

OptionsTraders

The option markets offer further evidence of intense speculation. The 8-day CBOE equity put/call ratio declined to .40 on Wednesday, the most extreme level of call buying to put buying in over 20 years. The last time the 8-day p/c ratio was lower was July 18, 2000, at the top of the initial rebound in the NASDAQ's bear market from March 2000 to October 2002.

Sentiment measures are just one way to take the market's temperature. Another, more immediate way to look directly at the patterns of investor psychology is reflected in price charts.

That's what our December Elliott Wave Financial Forecast does for you: Namely, it describes how current sentiment measures align with the stock market's Elliott wave pattern.

So you get a complete, and immediate market snapshot -- and a clear idea as to what's likely next.

This analysis will help you ascertain whether stocks are near the start of a bull market (like the early 1920s) or much further down the road.

Get the Elliott wave insights you need to know by following the link below.

The Stock Market is Now on the Cusp of a Major Transition

This is what Elliott wave analysis clearly suggests.

Even so... surveys reveal that many investors are not convinced. Indeed, it's the opposite -- bullish sentiment is historic.

This is a financially dangerous mindset -- which is the unavoidable conclusion of our latest review of the DJIA's price pattern.

Get the details so you can prepare for 2021.

Just follow the link below.

EXCLUSIVE

Shanghai Composite: Does the Rally Have Legs?

Chinese stocks have risen strongly off their October lows. With all the political turmoil in China, many are wondering if the rally is just a flash in the pan. Our Asian-Pacific Short Term Update editor, Chris Carolan, walks you through the Shanghai Composite's Elliott wave pattern to give you an unvarnished, objective answer.

EXCLUSIVE

2024 Presidential Race: 3 Dow Levels to Watch

With the midterms in the rearview mirror, let's look ahead to the 2024 presidential race. Polls have infamously missed the mark over the past few election cycles. Discover how you can use the stock market to anticipate the election outcome without polling a single person.

Chinese Stocks vs. Protests: Which Leads, Which Follows?

On TV, financial pundits connect the day's news to market action all the time. But watch our monthly Asian-Pacific Financial Forecast editor, Mark Galasiewski, walk you through the timeline of China's recent protests and the action in the Shanghai Composite to dispel (yet again) the myth that "news drives markets."