Big article on Marketwatch today about how “young and dumb traders” were driving the market rally, which current has the indices within spitting distance of all time highs despite the COVID reduced recession, and has the market extremely overpriced (meaning, a forward P/E of 22–24, when historically a P/E of 16 is considered to be fully valued).
(I’ll link to the story below, so as not to distract anyone.) :-)
I had to wonder for a moment if that’s actually true or not. Not the part of young and dumb traders, but if the market is actually overpriced.
The traditional market mean of 16–17 is just that; an average. But prices (and earnings) are affected by certain other quantitative variables which are set independently, the most notable of which are interest rates. When the Fed wants to stimulate the economy, which drives earnings up, they lower interest rates. When they want to keep the economy from overheating and crashing, they raise the rates, which puts the brakes on earnings. Prices, of course, move accordingly. …
If you’re distraught about the state of the world economy due to COVID-19, spare a thought about what conditions would be like had this all happened 25 years ago, when bandwidth in developed nations was not nearly sufficient to support Zoom, when access to the internet was not ubiquitous, when developing nations had no access at all, and when Amazon didn’t exist.