Companies are still trying to figure out how to deal with sky-rocketting tariffs, stubbornly high inflation which will continue to growth and other shifts in an economy made regulatively uncertain by crazy politicians spreading rumors.
If one looks at profits over the preceding 10 years, we see that the Standard&Poors 500 is approaching its most expensive level since the 2000 dot-com bubble. Today, it’s exactly the same speculative bubble for something nobody understand, something the market is unable to evaluate properly : the algorithms of the so-called Artifical Intelligence. We can make parallels between 2000 bubble, which saw the S&P 500 eventually halve in value, and the recent bonanza of Ai. The turning point in the market is near.
Actually stock prices have surged much faster than profits of the enterprises on last year. Either corporate profits need to rise or stock prices need to drop (it means a crisis). The crisis could be a crisis of confidence. Are you really sure that a world at war (Ukraine, Gaza, soon Taïwan) needs a videos games company, Electronic Arts, of $55 billions value, financed by a LBO of $20 billions ? And when confidence is gone, it’s a long way to rebuild it.
Much of today’s optimism is built on tomorrow’s expectations for certain things to happen. If they don’t, the pretty picture on Wall Street could become much more uglier. The main reasons the stock market is booming today, is the expectation that the Fed will deliver a string of cuts to interest rates. As if the last 0.25% cut done by Jerome Powell wasn’t the maximum he could afford without rekindle inflation.