Stocks Pause But Are Likely To Go Higher Soon

Markets took a breather on Tuesday, possibly in anticipation of the impeachment vote in the House of Representatives coming on Wednesday, but also not discounting the fact that stocks are once again hitting new record highs.

An appreciation that stocks may have reached untenably high valuations would likely slow down or reverse trends in most markets, but stocks in the era of free Fed money are far removed from anything approaching normalcy. This slow trading will likely last only a day or two at best, for there is money to be made in finding the greater fool, upon whom one can dispose of overpriced assets.

As far as measures of valuation are concerned, one of the best is Robert Shiller's CAPE (Cyclically Adjusted P/E) ratio, which takes the average P/E ratio of a stock over the past ten years, not just the past year or forward year as the simple P/E ratio does. It stands today at 30.60, a level above that of Black Tuesday, the fateful day in 1929 which kicked off the Great Depression.

Shiller's CAPE level, while accurately delineating the high valuation of stocks being bought and sold in today's marketplace, should also not alarm. They've been at, above or near that same level for some time. It might be instructive to note that the highest CAPE reading ever was in 2000, at the peak of the NASDAQ bubble, when the ratio stood at nearly 45.

This one-day bout of sleepiness is probably an outgrowth of being a little bit overextended in some people's minds. They are likely to be changed soon. There still appears to be plenty of room to run.

At the Close, Tuesday, December 17, 2019:
Dow Jones Industrial Average: 28,267.16, +31.27 (+0.11%)
NASDAQ: 8,823.36, +9.13 (+0.10%)
S&P 500: 3,192.52, +1.07 (+0.03%)
NYSE Composite: 13,795.35, +0.20 (+0.00%)