How To Keep This Market Moving

The market keeps flying.

The S&P hit a new all-time high of 6,099 yesterday. That’s up 28% for the year, and 75% from the October lows set just over two years ago.

Valuations have gone along for the ride, too.

S&P company valuations as a percent of sales exceed all levels achieved over the past three decades (MVA margin below).

And nearly 50% of that valuation depends on continued growth in competitive profits (Future Growth Reliance) – a level last seen coming off the internet bubble.

By any measure, this market trades exceedingly rich. But the economy’s trajectory could justify that richness.

Unemployment remains low at 4.2%.

U.S. economic growth has been growing steadily between 2.5% to 3%, quarter after quarter.

Falling interest rates, both short-term (Federal Funds Rate) and long-term (10-Year Yield), favor growth.

Consumer confidence continues to improve. And, as Bloomberg reports, optimism for small business owners has soared.

Capital won the election. And the remarkable market optimism of the last few weeks reflects bullishness from the bottom up.

The fact is companies now want to invest in growth.

AI has poured billions in CapEx (business investment) into the productive economy. And those investments already show a payoff for leading tech companies.

Nothing powers an economy like business investment. It creates jobs—those jobs power consumption. And the promise of a dramatically lower regulatory environment will renew investment in oil and gas, LNG and LPG exports, and frontier industries like robotics, self-driving cars, and the commercialization of space.

A final factor, a sort of one-two punch, could help the market sustain this momentum — lower federal deficits and inflation.

It’s a powerful combination of forces that, along with continued economic growth, could substantially melt the federal debt burden and create even more room for bottom-up business investment.

I’ll have more on that tomorrow.

Until then…

Think Free. Be Free.

Don Yocham, CFA

Managing Editor of The Capital List