The retail investor is still like a “deer in the headlights” frozen in what action to take in their portfolios. Bond buyers exist and cash tends to be the largest allocation in most portfolios.
I can remember when the Dow Jones hit 1,000 and investors were saying the market was too high. Again at 10,000 everyone was celebrating and then getting out of the market. I have always judged markets reaching all-time highs by applying the Rule of 20. The Rule of 20 states that when you use 20 as a high P/E threshold then subtracting the current inflation rate (which is really about 2.8 %) you get the reality Price/Earnings (currently roughly 17.2). That is where the P/E of the S&P should be but we are at 14.8 by most calculations. That means that the market still has room to run.
Valuation and Monetary Supply are two very important factors in valuating markets and both of these are still very positive. What we need is as excuse for the high degree of cash to find its way back into the market and that may be a small correction to get the “markets to high group” back in the game.
Thanks for reading and would welcome your views.