This Market Bubble Is Getting Dangerous

Since 2009 and 1945 we’ve averaged a 5+% pullback or correction in the S&P 500 every six months…

The stock market is always climbing a wall of worry, even in the roaring 90’s.

 (Source: Michael Batnick)

Since 2009 and 1945 we’ve averaged a 5+% pullback or correction in the S&P 500 every six months.

  • this is the approximate frequency of market pullbacks that is likely to persist for the foreseeable future
  • the cost of owning the best performing asset class in history
  • smart long-term investors (DK members) harness this short-term volatility for their benefit

What makes up the Wall of worry today? Here’s a survey from Deutsche Bank.

(Source: Lance Roberts)

The current Wall of Worry consists mainly of vaccine/pandemic related potential bad things happening and insufficient fiscal and monetary stimulus.

  • these short-term risk factors are the potential catalysts for flipping Wall Street from “risk-on” to “risk-off”.

In the short-term no-one can predict the stock market, because just 8% of returns are a function of fundamentals, according to JPMorgan. Moody’s, a blue-chip economist/analyst firm, has a base case forecast predicting a multi-year bear market beginning in early 2021.

Goldman Sachs, another blue-chip economist/analyst firm, predicts stocks will rally to 4,600 on the S&P 500 (up 25%) by the end of 2022.

JPMorgan, another blue-chip economist, thinks stocks could hit 4,600 by the end of 2021.

Bank of America, another blue-chip economist, thinks stocks will post modest gains that disappoint many.

“Bank of America expects global GDP to grow 5.4% in the next year, while the US economy grows 4.5%. The S&P 500 will rise roughly 5% to 3,800, and the 10-year Treasury yield will climb to 1.5%, according to the firm’s outlook note.” – Business Insider

All four of these economist/analyst firms are among the 16 most accurate out of 45 tracked by MarketWatch. How can they differ so greatly in their forecasts for the stock market? Because…

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