Pro Perspectives 9/5/19

September 5, 2019

In the past few weeks, we've talked about the important signal to be taken from stocks.  Despite the weight of bad news, stocks held steady, and ultimately that can turn the tide of sentiment. 

When the news turns, watch out. 

Yesterday, the yield curve turned positive.  Today, we get some positive economic data, and a positive turn in the U.S./China trade standoff.  Stocks exploded higher.  Yields popped.  And gold (the fear trade) unwound by 2%. 

The S&P 500 now looks like we have a clean break above the big 2,940 technical level we discussed last week.  We're now just 2% away from record highs. 

And we have central bank stimulus coming down the pike in the next two weeks.  This could become the "melt-up" scenario we talked about yesterday.  

Remember, we've talked all year about the comparison between today and 1995, where the Fed was forced into an about face on monetary policy.  Stocks did 36% in 1995.  The S&P 500 is now up 18.7% year-to-date.  

With global monetary policy promoting higher stock prices, we have a forward P/E on the S&P of just 17, with a ten-year yield at 1.56%.  That P/E should be north of 20.  If we get that multiple expansion on $176 of forward earnings, we get an S&P of 3,520.    That's 18% higher from here. 


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