US corporate profits (US$Bn) on a quarterly basis (left) versus S&P Market (US$Tn) (right) to Dec 2023. Although profitability is starting to ascend rapidly, there remains a massive disconnected between it and that of the collective S&P mkt cap.; which is in turn, dominated by just seven stocks (~26%).
We contend that a 30% decline would only depress stocks to long-term valuations based on profitability measures. But given that markets over and under shoot fair value, it is probably reasonable to expect the eventual market nadir to be substantially lower still.
We remain fascinated by market bubbles, the repeated history of such, have led some market commentators including James Dines to conclude that bubbles are somehow invisible to the masses, and in particular, “are invisible to those inside” and the axiom “it is different this time” always applies. The current era is arguably akin to that in the 1920’s, in particular, the quantum of financial and technological innovation covering all facets of life. We note that asset managers net position in US index futures and options (of its gross position) is >58%, a level last reached in 2009.
“History never repeats itself, but it does often rhyme. …”
