Issue 20 – Will Stock Prices Hold?
The old age and the elevated valuation of stock market averages are causing concerns that the bull trend may be nearing its end and that a bad turn is imminent. While we recognize that skittishness can bring about market corrections when valuation metrics are ahead of themselves, secular bear trends are only firmly in place when recession risks are very high. Investors often misjudge what is going on. When the situation is too abstract, people tend to go along with the general consensus as it is socially acceptable and expected of them. These natural herd tendencies are psychological pro-cyclical behaviors that can often go too far, which increases the probability of being wrong.