I had posted this comment in response to a comment by Court over on Dew's board and thought it may be more appropriate here. This is my base case argument for moving to fixed income over the last several months.
Ms. Market is like Mike Tyson...everyone's got a plan until she punches them in the mouth..:).
With interest rates up, bonds and like products are back in favor. Advisors are dusting off the 60/40 allocation. In my experience, this does not portend the return of a bull market.
One basic metric I use is market P/E. In the past we considered ~15X as fair value on the SPX but since the fast growing tech giants have become such a large part of its overall value it's more like 20X fair value with a top between 24-25X. Of course, during or coming out of, a recession the P/E is skewed upward, sometime dramatically.
Looking at the peaks at the end of 2019 and 2021 and comparing it to today's market, I see similar issues with regard to P/E and in today's case a less solid economic argument for P/E growth. The SPX P/E peaked at 24.4 in December of 2019 and an even higher 27.3 in December of 2021. After Friday's close the current SPX P/E is 24.8. Could it move higher? Of course. Given the outlook for earnings over the next two quarters, is this fair value? In my opinion, unlikely.
The stock market is a device for transferring money from the impatient to the patient. - WB
