The stock market has hit record highs since Donald Trump was elected in January. By mid-February, this exuberance appeared to have calmed, before the “third wave” of the Donald Trump rally took hold, driving markets even higher this week.
How should we be interpreting this rally?
One view says that the Trump rally is being driven by fundamental value. After all, Trump claims he’ll renegotiate trade deals in America’s favor, lower corporate taxes, deregulate Wall Street, and reinvigorate the U.S. economy. If we believed that he’d deliver on these promises, then surely the market rally is justified.
Bears have been crying wolf for weeks now, to no avail. MarketWatch has cited numerous reasons to be worried: the S&P’s average P/E ration is now 21, the highest level since 2009, the CBOE Volatility Index (Wall Street’s Fear Index) is “suspiciously low” and we appear to be in a “late leg” of the economic cycle. Even if Donald Trump is America’s most pro-business President, it’s unclear his first few weeks in office have justified the $3.1Tn in market value that’s been created since November.
Even while everyone worries when the euphoria will end, bears are getting trounced as the market inches higher and higher. As is often the case, it’s hard to predict when the rally will tip into recession.