To be clear, the market is in correction territory and has formed a new downtrend. But if the market turns higher (enter any positive headline the market wants to focus on) -we can easily move higher from here. Here is the “bullish” case for stocks to rally:
1. Fairly Valued: We do want to note that they S&P 500’s P/E ratio is in the mid teens and we haven’t seen a major market top with the P/E below 22 in the past several decades. That doesn’t mean we can’t top out with a lower P/E ratio – It just means that it hasn’t happened in the last few decades.
2. Rates Are At Zero: Secondly, rates are at zero- we haven’t seen a big top in U.S. equity markets when rates are at zero anytime in recent history. Again, that doesn’t mean we can’t top out with rates at zero – it only means it hasn’t happened yet.