RE:Is a market correction under way?
laurencelefou wrote: NASDAQ is down more than 10%. Inflation is up, interest rates are going up, housing market is up. War is looming in Ukraine. North Korea is launching missiles. Jeremy Grantham sees super bubble.
Time to increase your cash position??
https://www.bnnbloomberg.ca/grantham-doubles-down-on-crash-call-says-selloff-has-started-1.1710625
I don't expect a crash. If you define a crash as a drawdown of 30% or more from the recent high than I don't think so. Keep in mind that high inflation tends to increase the P/E ratio as cash flows are likely to compound with the added boost coming from inflation. In addition, the 10 year treasury yield is approaching pre-pandemic which is negatively correlated to stock prices however we have a unique situation of high inflation and relatively low interest rates.
Ive checked on the Nasdaq and the estimate PE multiple for 2021 is approximately 23.88 which is slightly lower than the S&P 500 which has a PE ratio of 25.08 (source multiple.com) Given the low interest rate (historically speaking) and high inflation I believe these multiples to be reasonable.
The question now becomes how aggressive will the feds be with their planned interest rate hikes in 2022? If rates increase too aggressively this could have a big impact on inflation and especially the housing market. What I find to be unprecedented is how much real estate prices spiked in one year. The question I often think about is, are we headed for a housing collapse? My guess would be that real estate prices could experience a correction but as long as demand outpaces supply this may not happen. If real estate prices continue their upward trend we could unfortunately see inflation persist for many more years to come.