Are Stocks Currently Overvalued?

Dear Reader,

Are US and global stocks overvalued in the current coronavirus disease COVID-19 pandemic situation  as measured by the main indices?

Yes. The Standard and Poor's 500 US stock market index is down only approximately 11.8% year to date.

I basically find this shocking and unfounded. The markets, driven by the huge liquidity provided primarily by the Federal Reserve, but also from other major central banks all over the world, have become detached from reality.

Let us stop and think for a while. The global economy is in a lockdown. Entire industries like travel(air carriers, buses, transport etc.), leisure(cruise ships, gaming, hotels etc.), tourism(cafes, restaurants, hotels) are virtually non existent. The price of oil, the major commodity that drives the global economy, has crashed severely dragging along with itself the stocks of all major oil companies and making the business of large part of the entire oil sector in the US primarily engaged in extracting oil by hydraulic fracturing nonviable. Sooner or later companies defaulting in the aforementioned sectors will bring trouble in the form of non-performing loans to bank balance sheets, which will further tank the economy.

And still the S&P 500 is down only 11.8%. Other global leading stock market indices have also recovered substantially from their recent lows. I find two main factors for this stunning development. I already alluded to central banks printing money and basically giving it away. The second factor is much more interesting. Millennials, or people born between 1980 and 2000 seem to think the stock market is on sale every time it falls. Basically, this is a fallacy. Born in 1982, I am also part of the millennials but I do not think the market is on sale, because I have read and studied enough to know that fundamentals matter. Millennials have not experienced a real crash in their working lives. We were very young in 2009 during the Great Recession. Millennials have not seen their livelihood threatened and as young people they are naturally optimistic and think everything will be fine. Yes, everything will be fine, but not before a prolonged economic crisis and a crash in stock market indices.

I forecast leading US, European and Asian stock market indices will fall 40%  to 50% from current levels. Fundamentals do matter, be it in the mid to long-term. Do not believe if someone tells you fundamental like revenue, net profit margin and growth do not matter. Fundamentals matter.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich