The dilemma we face

The dilemma today is that we’re at historically high P/E’s.

So there’s little room for rising P/Es. 

The preceding secular bull ended (2000) with the market valuation (P/E) at levels twice as high as all previous secular bulls. 

We’re in the early to mid stage of what historically has presented itself as a secular bear market.

Therefore this secular bear had twice as much ground to cover. 

The current secular bear market started to deflate the bubble, but the market still remains at or above levels consistent with secular bear starts.

We have a long way to go…but yesterday The Fed got the ball rolling and the markets finally woke up when they received minutes from a meeting. 

The terms “elevated levels of inflation,” “elevated inflation,” and “elevated inflation pressures” were

mentioned five times in the minutes.

Raising the federal funds rate could come “relatively soon” – so liftoff maybe at the March meeting – and then the balance sheet reduction could come “relatively soon after beginning to raise the federal funds

rate,” the minutes said, and it may raise the federal funds rate “sooner or at a faster pace than participants had earlier anticipated.”

Quantitative Tightening: sooner, faster, and more.

The S&P 500 plunged 1.9%. The Nasdaq plunged 3.3%.

Yields jumped.

The 10-year yield rose to 1.71% having jumped 19 basis points over the three trading days so far this year. 

Seems, the bond market woke up a little sooner than the stock market.