The Stock Market Is Not A Bubble

Haribo bubble gumWikimedia CommonsChewing gum from France’s Haribo factory.

Is the stock market a bubble?

Liz Ann Sonders doesn’t think so.

“The growing cries that we’ve reached sentiment or valuation extreme worthy of past tops, or a bubble at its bursting point, seems a bit premature,” wrote Sonders recently.

While there are warning signs for the economy and the markets, most signs actually suggest that fears of a bubble are way overblown.

Sonders, the chief investment strategist at Charles Schwab, gave her brief Market Snapshot presentation earlier this week charting both the good and bad things about the market today.

While her message can’t be characterised as a “raging bull,” her evenhanded message is nevertheless likely to leave you feeling more sanguine about the current state of the markets.

Thanks to Charles Schwab for giving us permission to feature this presentation.

Here's everything going that's relatively bad today.

Here's everything that's relatively good.

Spending cuts are holding back the economy.

The government is also holding back the labour market.

However, deficit levels are falling fast.

America's balance sheets are looking a lot firmer.

The rebound in the housing and stock markets have made people richer.

Long-term stock market returns have been rising sharply, but the levels are still modest.

Most of the bubble warning signs of the past haven't appeared yet.

The bull market isn't that old.

Higher long-term interest rates suggest the economy and markets will be in good shape for a while.

Here's a look at what rising rates have meant for the markets and the economy.

The stock market is cheap relative to expected earnings growth.

Low, but moderate inflation means valuations can go much higher.

But for now valuations are low and cheap.

Investors have yet to make there move back into stocks from bonds.

Indeed, investors may be a little too exposed to bonds.

Pension funds have are among the biggest investors that have been dumping bonds for stocks.

Endowments is another big investor class with low exposure to stocks.

It's worth noting that investors are very optimistic, which is actually a bad sign for future returns.

But you could also argue that investors are quite sceptical.

The folks who have been wrong about markets are feeling the most confident today.

Here's the psychology behind a stock market cycle.

Market Snapshot

Market Snapshot

Market Snapshot

Market Snapshot

But here are some anecdotes that will dispute Sonders' thesis...

American financier J.P. Morgan is depicted as a bull, blowing soap bubbles for eager investors.

19 Unmistakable Signs That We're In Some Sort Of A Bubble »

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