U.S. stocks declined for a second straight day, and the futures market was marginally down before the opening bell in New York this morning. Yet even if the S&P 500 notches a third straight day of declines today, traders think it will eventually swing higher. This is despite a feeling among analysts that equity valuations are historically high and the market is being driven by a handful of tech companies.
The S&P 500 sank for a second straight day yesterday, but no one’s complaining—it is still up nearly 13% year to date. Futures are also marginally down this morning, premarket, suggesting that investors aren’t expecting too much drama in stocks today.
The U.S. Federal Reserve has signaled that further interest rate cuts are likely on the way—and new cheap money will be good for stocks in the future.
The problem is that the market is nonetheless historically very high. Fortune’s Shawn Tully points out that the S&P 500’s price/earnings ratio just hit 30, which often signals impending doom. “A P/E of 30 means big-cap stocks are really, really expensive by historical standards. It also signals that from these heights, the chance for big returns going forward over any extended period is low, and the risks of a sharp ‘reversion to the mean’ downdraft is far more likely,” he wrote on Tuesday.
