Filmed by Rod Fitzgerald. Produced by Filip Fortuna.
Joe Kennedy famously knew it was time to get out of the market when his shoeshine boys started to offer up hot stock tips. Could it be that the investors of 2017 will look back on ex-boxer Mike Tyson's recent launch of a retail brokerage offering 400 times leverage to its clients as a modern day equivalent?
With the S&P 500 this week posting its worst one day slide since October, analysts at Northern Trust have drawn up a list of warning signs that a sustained rally in hope of global reflation is looking increasingly brittle. Aside from anecdotal signs of exuberance, such as Mr. Tyson's new venture and President Donald Trump tweeting out his joy at the "great level" of confidence and optimism the market was showing, the brokerage is actually worried that the price to sales ratio for the S&P is close to a record high, and that the US equity market has grown to account for close to 40% of global equity value, in spite of accounting for only a quarter of global gross domestic product.
Other portents of a tiring bull market they identify include the fact that US transport stocks have started to underperform the wider market, in spite of the fall in the price of oil, which should usually be good news for airlines. Another sign is that the US auto finance market is starting to slow.
If this makes for uncomfortable reading for anyone who made a blind jump into US equities since November, based on vague and uncertain macro guesses, then it should be. In confusing times, there is one North Star that all sensible investors can rely on, and that's value. Or in other words, the price they pay versus the value they receive when they buy an asset. US equities are by no means cheap, relative to their history, and many uncertainties hang over the market right now. Anyone buying shares in a US company today should ask themselves one simple question-- if the price of the stock you purchase halves tomorrow, is the business so good or cheap that you would buy more? If the answer is no, then maybe they should not be buying anything at all.