Monthly closing price for SPY on the 1st day for the month from 2 years prior to a market high to 3 years after that top. The data points are indexed to the starting point 24 months before the market top.

I know, I know, it’s different this time. It’s always different. Different is not a relative measure of anything. “It’s different” is an opinion that leaves open the possibility of anything and everything including, it could be worse.

Here are some things to consider.

S&P 500 operating margins are at an all-time high. I expect reversion because of the following: wage pressures, cost inflation, cost of debt rising and top line growth waning. Plus wealth disparity is a political hot topic, inflated operating earnings from cheap capital is one of the factors.

We’ve just had a record investment in inventories. Granted, some of this is replenishment or purchases that were delayed by supply chain issues. But it’s the timing that concerns me, because…

Real MFG and Trade Sales YOY are negative.

Inflation is at a 40 yr high and Unemployment is at a 50 year low. Rates are going up.

P/S ratios are down roughly 20-25% from their highs, BUT they are still 50% higher than 2007. (yes, this is interest rate dependent, but rates are rising)

Corporate debt levels, with the exception of a covid spike, are at all time highs. Government debt is at an all time high.

Germany just nationalized Russian assets.

The US-China trade war is getting worse with restrictions on chips and airlines and sanctions retaliation from China. This may be at a point of no return.

Is the stock market a popping bubble? Well, some of the underlying factors are at all time extreme levels. Perhaps it’s just deflating?

We are navigating this environment for our clients. Contact us to discuss working with Alhambra.

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