Getting Back to RealityA short while ago, I outlined my Base Case WRT the market. In sum, I foresee a shallow recession in the US and a deeper recession in Canada.
Current market pundits in the US are not predicting a recession at all in the US and hence the current stock market rally in the US. Admittedly, in recent weeks I have on a short term basis reduced my cash position and benefitted from this - although my overall portfolio asset allocation is still heavily weighted towards fixed income and defensive.
There are lots of concerns I have with the pundits and have talked about these before. One thing I want people here to think abouti is in addition to what I have said before is that in the US, the P/E ratio for the S&P 500 is currently in the low 30s which is high relative to the current interest rates in the US.
The market is pricing the current market assuming a significant decline in interest rates between now and the end of 1Q 2024. Recent comments by J Powell suggest that this is highly optimistic.
I expect sometime over the next week or so that I will be taking profits and re-establishing my overweight position in cash in my portfolio. Part of this rationale is that the market sentiment indicator is well into the Greed Category and pushing towards Excessive Greed which traditionally is a leading indicator of an impending market correction.