Our expectations for market in future

It is very critical to analyze where the markets will go in the future. We admit many had failed to do so, but this is the area where it can drive to higher gain than others. The difficulty can be ease by balancing between expectations and reality. If we expect a down period, that can be balanced by gradual out instead of 100% out. Let’s see what is in hand to expect !

GOLD vs Market

Gold recently had toughed the highest price ever ! Gold usually goes up when money owner lost the trust on the markets. Unfortunately and historically, Gold and Equity Have An Inverse Relationship. When the gold price goes up, the index underperforms. The gold price vs stock market has a correlation? Yes, there is a negative correlation. In this context, gold is often referred to as a safe haven for investors. But when we refer to gold as ‘SAFE’ we are talking about safety with respect to what? Gold works as a safety cushion for investors against the stock market’s volatility.

Using the Price-to-Earnings Ratio (P/E) and PEG (P/E Growth)

The price-to-earnings ration (P/E) is one of the most widely used metrics for investors and analysts to determine stock valuation. In addition to showing whether a company’s stock price is overvalued or undervalued, the P/E ratio can reveal how a stock’s valuation compares to its industry group or a benchmark like the S&P 500 index. A high P/E ratio could mean that a stock’s price is high relative to earnings and possibly overvalued. Conversely, a low P/E ratio might indicate that the current stock price is low relative to earnings. PEG try to include the growth aspects in calculations, so, higher growth stocks can be balanced with higher PE.

Below chart shows the historical PE ratio of S&P500. It is easy to notice that average of 20 and above increase the market risk and requirement for correction or stabilization to wait for stocks earning growth. A ration of 10 and below considered of golden opportunities. Current P/E for the S&P 500 is 22. That indicate that currently the markets within a higher risk than average.

Corrections after raise

Always there will be bloody correction after a raise and it last for a while. There are many in history, the most recent are 2000 internet bubble. Then only after 8 years on 2008 with Lehman Brothers collapse. A correction can wipe most of the profit gained in the last raise ! Check chart below, we are having a good raise without a slight correction to date. Often correction take ABC “up-down-up” correction based on Elliott Waves analysis. There are a possibility, we are in a B wave up and could follow with a C downward. See the chart below of S&P 500.

Interest rates vs indices

Interest rates are one of the key factors that drive macroeconomic environment and market sentiment. First, increase of interest rates attract money owners toward bonds instead of stock markets. Also, high interest rates often tend to negatively affect earnings and stock prices. When high inflation forces central banks to raise interest rates, companies face a higher cost for borrowing and higher payments on current debt. For example, growth stocks which indices need often take out loans that they are confident in paying back, because the expectation is that interest rates will be stable. As these firms tend to be in the early stages of development, borrowing money is crucial, and they tend to have longer-term cash flow horizons, hence affected more negatively by higher interest rates.  

Is the economy itself stable ?!

Banking sector suffering after Silicon Valley Bank collapse. Followed by second largest Switzerland bank collapse, Credit Suisse. Based on The Guardian this could be start of ‘slow-rolling crisis’. We will not magnify the issue, but the economy itself doesn’t support for new peaks and we need time to absorb the previous raise. Political affect still there. Also, the affect of the interest rates in profit clear and Meta had reduced workforce in high numbers twice.

Conclusion

The answer to our question is the economy is not stable ! That force us to be like Warren Buffett who has 130 Billion in cash waiting opportunities. Balancing between defensive, lower in risk entries and gradually. There is no golden opportunities that force us to put all of our cash in markets. As it is always our stand, we are fully transparent and we will not be like others, show you non-real green world of markets. That doesn’t mean market will not raise, usually it can test the peaks, but the speed of last raise, need time, so, the raise could be moderate and week to stand.