Well, as stated on June 3rd, we said a bottom was formed with the SPX at ~2729 and that the SPX was going to trade to new all-time highs.  Three sessions later, with the SPX at 2852, we wrote the stock market was probably going to stall into mid/late-June, but that new all-time highs were still coming.  The stock market did indeed stall, but only for about 5 sessions followed by a breakout to new all-time highs.  Indeed, “Don’t tell me what to buy, tell me when to buy!”

Meanwhile, some Wall Street pundits suggest the SPX has already tagged their year end price target, stocks are expensive, and a recession is on the horizon.  They obviously are NOT listening to the message of the market that is predicting no recession.  Speaking to their other points, while earnings estimates for the S&P 500 have come down from roughly $173 to $168 for 2019, and $188 for 2020, stocks are not all that expensive on forward earnings.  If those estimates are correct, it implies the SPX is trading at 17.5x this year’s estimate, which granted is a tad on the expensive side, but only at 15.7x earnings for next year.  However, our models tell us under the current interest rate environment the right price earnings multiple (PE) should be 19.  Therefore, 19x this year’s estimate yields a price target of 3192 for the SPX.  If 2020’s estimate is anywhere near the mark, the SPX’s price target becomes 3572 (19 X $188 = 3572).  To wit, the average PE multiple at the end of just about every bull market is 18.89x earnings (Chart 1).  As a sidebar, the SPX’s PE ratio at the end of the late-1990’s bull market was over 30.

Eoin Treacy's view

Here is a link to the full report. 

I was in UPS on Saturday returning something to Amazon and I asked the guys working in the store how business was. They said it was busier than normal for the time of year. That’s what I see in Mrs. Treacy Amazon business too. If that’s the case where is the evidence of the recession?

The question of P/E ratios and what they will be when the market eventually peaks is a fun exercise in futility. No knows ahead of time how big a mania will be but one thing is for sure. If the market is going to attain lofty valuations there is going to have to be a compelling motivation so people will set aside their qualms. Negative interest rates, an end to quantitative tightening and an intensification of the liquidity fuelled environment appear to fit that bill.

The S&P500 would now need to sustain a move below the trend mean to question potential for additional upside.