Bull? Bear? The U.S. Stock Market Is More Like The Honey Badger

Voters in the United Kingdom shockingly decided to leave the European Union? The stock market barely blinked. Voters in the United States unexpectedly elected a brash promoter over a well-established political insider? The stock market didn’t care. It told the media elite to take a hike, then promptly climbed to higher ground.

The S&P 500 really doesn’t care what you think. It takes what it wants when it wants. The Federal Reserve continues to raise overnight lending rates? The yield curve flattens like a collapsible Surface tablet. And yet, stocks hang within 2% of all-time record highs. Forget the popular bull and bear references. The U.S. stock market is as “bad-ass” as the legendary honey badger.

It is difficult to imagine anyone with access to YouTube having missed one of the most entertaining nature videos ever made. If the hilarious three-minute clip miraculously eluded your sensibilities, however, you may want to discover why the Guinness Book of World Records anointed the honey badger as the “World’s Most Fearless Creature.”

What may be more impressive than the S&P 500’s seeming immunity to geopolitical risk and to the reduction of monetary policy stimulus is its durability in the face of obscene valuations. Nearly any method for determining whether one is getting a bargain or paying a premium for participation comes up unfavorable; that is, on nearly any metric, U.S. stocks are 25%-124% overpriced.

The less traumatic estimates – EV/Sales, GAAP-based price-to-earnings (P/E) – appear to portend eventual “reversion to the mean” losses for equities in the 25%-30% range. And that’s only if stocks fell to fair value levels. History tends to be less kind during bearish retreats such that stocks will often trade at significant discounts.

Some of the more alarming valuation tools – market cap-to-GDP (“Buffett Indicator”), Cyclical P/E 10 (Shiller CAPE) – forewarn of the strong potential for a third 50%-plus decline for U.S. stocks in the 21st century. Indeed, it is difficult not to look at present circumstances as being more precarious than 1929, and wonder why many participants are heartened by the notion that we may not have approached the insanity of the dot-com bubble in 2000.