When things are going to happen, and the market gets a whiff of it, fast forward often kicks in.
That seems to be what is happening to my forecast that US stocks would end 2016 on the back of both rising earnings and a price earnings multiple expansion.
Hey Mr. Market! Check your watch! You’re three months early!
Earnings are growing modestly, as I expected. But multiple expansion has taken off like a rocket and is approaching the highs not seen since the 2000 dotcom bubble top.
S&P 500 earnings multiple are about to approach the 20X line, and 21X beckons.
How high will multiples rise in this cycle? The old previous high of 26X seems like a chip shot.
However, we now live in a brave new world.
Is a 30X multiple possible? That would require the stock market to rise by 50% on current earnings, and much more if they start to reaccelerate as well, which seems to be happening now.
This could take the Dow Average up to an eye popping 27,000, and the S&P 500 (SPX) to a scorching 3,227.
But wait! There’s more!
If earnings and multiples BOTH rise 50% each, as we enter the 2020’s, that boosts the Dow Average up to a fanciful 40,000, and the S&P 500 (SPX) to an unbelievable 4,837.
Is anyone ready to sit down and have a stiff drink yet? I recommend the Jameson 12 year old, neat. A bottle will do.
I have been predicting these levels for years. I just didn’t think they would appear so quickly.
There is no shortage of reasons for the current, out-of-the-blue stock melt up.
The negative interest rates that now afflict the bulk of the world’s bond markets are a major cause.
These are the result of global central banks absolutely flooding the world’s financial markets with liquidity.
A surprise Brexit vote put a turbo-charger on this trend from which ultra high bond prices are yet to retreat.
The harsh reality that the bond bears fail to face is that there is a global bond SHORTAGE!
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