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islander507

all broad indexes are again floating around all time highs. I believe that valuations are inflated and stock market is likely to experience a significant correction.
Persuade me otherwise.

S&P 500
https://www.google.com/search?q=s&500+index&ie=UTF-8&oe=UTF-8&hl=en-us

Nasdaq

https://www.google.com/search?client=safari&hl=en-us&ei=MqlkWYu9G8aT-wGe2oPoAQ&q=nasdaq+index&oq=nasdaq&gs_l=mobile-gws-serp.1.0.0i67i70k1j0i131k1l3j0.225697.229066.0.231004.18.17.1.2.2.0.128.1472.10j5.15.0....0...1.1.64.mobile-gws-serp..7.11.835.3..35i39k1j0i22i30k1j35i39i70k1j0i30k1j0i67k1j0i131i67k1j0i20k1.lXsF5-W7uZ0

joecavalry

I believe that the market is fairly valued. Stocks are not inflated, but rather experiencing high prices due to the newest president and all the excitement with investors about his agenda. This could be the reason there is a big boost.

islander507

@joecavalry, that is a far opinion, but not quite enough to persuade me.  While there is lots of optimism, I see lots of headwind and uncertainty for the economy.  Would like to see more specific arguments on that one please.

WhyTrump

@islander507, here is a good simple way to think about it:
stock market has gone up exponentially over time.
Whenever stocks hit all time high, many get concerned about a bubble.  Most of the time they are wrong, and it goes higher. that explains the fact that it grows so much over time.

unless you have a great reason to think specifically it is more overvalued than other parts of history you will just likely end up making a wrong bet.

we have a strong economy with low unemployment, low interest rates, and good prospects driven my significant technology improvements.  

islander507

@WhyTrump, thanks.  Your points are debatable, since you are essentially saying that past performance is an indicator of future performance. I don't think that's true

melef

No. The FED has announced a rate hike.

islander507

@melef, not sure if FED announcing a rate hike fully supports the fluffy valuations. It is one of indicators projecting confidence in the economy, but IMHO not strong enough 

ChangeMyView

@islander507, the outlook looks great.  There is lots of excitement about Trump impact to the market.  Let's think about alternatives to investing in equities, it is a great track record of ROI.

MayCaesar

I believe the market corrects itself well enough on a long-term scale.

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Consider this. A certain stock becomes overevaluated, as investors see it as promising and put a lot of finances into it. Eventually it becomes very expensive to invest in. Investments drop, and the evaluated stock value growth slows down. 

Seeing the growth slowing down, the investors start anticipating the stock value peaking. Before that happens, they start selling their shares to make as much profit as possible, before the shares start dropping in price. As this happens, the stock value starts plunging due to investors pulling their money out of it. This process continues for a while, before stock value becomes underestimated.

At that point, seeing the stocks drop in value and approaching the peak bottom value, people start investing in the stock to be able to cash in on the expected growth.

This process continues back and forth, around a certain central value that is as close to the objective stock value as possible. The market keeps correcting overestimations and underestimations, as people try to profit off them and push the market against the current trend.

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This self-correcting effect is the essence of most stock and currency trading strategies. The strategies are typically based on selling items near the peak overestimation point, and buying them near the peak underestimation point. Learning to predict where those points will be is the surest way to ensure a consistent and substantial profit.

beckysmith

joecavalry said:

I believe that the market is fairly valued. Stocks are not inflated, but rather experiencing high prices due to the newest president and all the excitement with investors about his agenda. This could be the reason there is a big boost.

So wouldn't you agree that investors are over their heads and are overly optimistic? This is exactly how a market correction occurs.

beckysmith

WhyTrump said:

@islander507, here is a good simple way to think about it:
stock market has gone up exponentially over time.
Whenever stocks hit all time high, many get concerned about a bubble.  Most of the time they are wrong, and it goes higher. that explains the fact that it grows so much over time.

unless you have a great reason to think specifically it is more overvalued than other parts of history you will just likely end up making a wrong bet.

we have a strong economy with low unemployment, low interest rates, and good prospects driven my significant technology improvements.  

To validate this point, the economy's production must be growing parallel with the stock market and consumer spending, because otherwise its inevitable for a market correction/inflationary period to occur. In simple terms, if the government provides the economy with all this money for us to spend, we must have assets, and we must be producing assets as much as we are increasing our spending, which data shows we aren't.

piloteer

I find this post to be superfluous. The stock market is a constant system of correction. Friedrich Hayek showed that the stock market and the economy as a whole is driven by the corrections. What your saying here is like predicting the sun will rise.