While the major averages have retraced more than I expected during what I believe to be a bear market rally, the state of global macro affairs and their go-forward setup offers virtually zero odds of companies in the aggregate returning a level of profitability that comes close to justifying present equity market valuations.
Stocks are being bid up on “stimulus”, the likelihood of additional stimulus, a consequential dotcom-esque force of retail investors believing they’ve discovered an easy path to riches, and a perpetual verbal pumping by politicians and their appointees.
U.S. averages opened modestly lower this morning, presumably on historic jobless claims, however, equity volatility measures are lower as well.
We’re experience quite the study in “behavioral economics.”
“Reality: People simply do not think in terms of some theoretical utility measurable in dollars and cents, and are not always rational and self-interested. The refutation of this one assumption of modern financial theory has in the past twenty-five years created a fertile new field of inquiry, called behavioral economics. It studies how people misinterpret information, how their emotions distort their decisions, and how they miscalculate probabilities.”
–Mandelbrot, Benoit. The Misbehavior of Markets
Data, history, and human nature suggest this probably doesn’t end well…
SPX price, volume, volatility now: click to enlarge…