InvestIdeas

Extended 12-month forward valuation of the S&P 500 combined with historically high levels of bullish investor sentiment.

Most of the stochastic levels are overbought but have yet to generate bearish crossover signals.

At $233.07 per share, its forward P/E multiple is 21.0x and still well above the "rule of 20" ballpark fair value at 15.8x. With a 500-basis point premium, it remains a real cause for concern.

The S&P's earnings yield is 4.77%.

While the charts have yet to register important sell signals, valuation and sentiment suggest storm clouds are gathering that may result in some downside of significance in an abbreviated timeframe.

We continue to honor sell signals on individual names while generally refraining from chasing price.

Stocks have only had a positive January in an election year 11% of the time, the firm said.

Once that milestone is hit, the market has risen 100% of the time with an average gain of 15.6%.

If you want to know where the market is headed, take a look at utility companies.

Utilities Select Sector SPDR Fund (XLU)

The ratio of XLU to the S&P 500 is at a decade-plus low.

Momentum is still on the side of the stock market. This is a clear message we don’t want to argue with.

Once this ratio turns, that’s when we’ll get cautious. Until then, don’t fight the trend… We want to own stocks today.

Elections are reliably bullish. Stocks were positive in 20 of the past 24 election years… resulting in a strong win rate of 83%.

Don’t let this year’s political scene get you too shaken up. History shows stocks are likely to surge after the dust settles – regardless of the outcome.

With the S&P 500 already up 4% for the new year, the index is trading 22 times its 2024 earnings estimates.

That’s at the high end of its historical valuation range.

And that puts the earnings yield (earnings divided by price) at 4.94%.

By comparison, a three-month Treasury bill yields 5.25%.

So, with the fundamental valuation stretched to the high of its historic range and the technical condition looking poised to make a turn, investors might follow the same advice I offered in early 2022… Consider taking the rest of the year off.

At the moment, bottom-up sell-side forecasters think the S&P 500 is heading for 5,420 over the next 12 months, an 8.4% implied upside from last Thursday’s close.

Combine that with the sell side’s projected dividend yield, and it implies a 10% return over the next 12 months – 5.9 percentage points more than the yield on a 10-year Treasury note.

In a world without perfect foresight, it’s always wise to manage risk, but avoiding it altogether is a risk unto itself.

The point is simply that, while there’s obviously peril in knowingly riding a bubble, there’s also a steep price to be paid for skipping out on a growth story that ultimately turns out to be the real deal.