Crisis Stimulus Finds Nest In Shares

The effects of massive monetary easing happening across the globe is coming home to roost in stock markets, including our own. Be cautious.

- Simon Brown

After collapsing in March, markets locally and globally have rallied. The Nasdaq has led the way to near all-time highs while the S&P 500 is back above 3 100, close to its record high of 3 386. Both indices reached record highs in February.

Locally, the FTSE/JSE Top 40 Index is trading just below 49 000, at the time of writing, after kicking the year off at 51 500. The all-time high for the Top 40 was just under 54 000 in November 2017.

Looking at these indices’ levels, it’s fair to ask: what pandemic? Valuations are stretched to record levels.

The forward price-to-earnings ratio (P/E) of the S&P 500 is the most expensive it has ever been, with two exceptions: the 2001 dotcom boom and the 2008 crisis. The former ended in years of gloom, while the latter led to the longest and strongest bull market in the history of US markets on the back of US Federal Reserve (Fed) stimulus.