Is the Stockmarket in a bubble?

merlingrey

Radiantsoul wrote: »

I think the stock market is a leading indicator. So it ought to improve before the wider economy does.

Presumably higher interest rates would cause the discount rate on future income to decline and so lower share prices.

The P/E ratios of FTSE250 do seem quite high http://www.moneyweek.com/news-and-charts/uk-share-performance-table?index=FTSE250. Some potential bargains too though.

Thats a good point, the market will react but the economy will not shift for like 3 years from the reaction.

This is because the real economy cannot act as fast as somebody on a trading desk pressing the sell or buy button, the market can do in seconds what the real economy takes 3-5 years to digest.

Think of a supercomputer that absorbs information and makes a forward prediction.

IronWolf

No I wouldn't say it was anywhere near bubble territory. It is still not overvalued if you consider interest rates are at 0.5%, it's still the best place to invest money at the moment with interest rates so low.

However I do think certain sectors are approaching bubble territory, such as non-discretionary consumer goods large caps which are pretty overvalued imo, just because they pay a stable dividend.

gadgetmind

cepheus wrote: »

It seems strange seeing the stock-market posting new highs whilst the UK recovery is still fragile

Why? There is historically *very* little correlation between stock market returns and economic indicators such as GDP growth.

Jegersmart

I am also not sure whether one can describe the stockmarket as a bubble, but one does absolutely have to consider that QE causes asset inflation which is why almost everything has been going up for the last several years, bonds, equities, gold, everything at the same time. QE also allows companies to reduce cost of operations and produce better financial results - something which is of importance to equity market participants.

All I will say is that I wouldn't be chasing risk right now, perhaps later in the year when we have formed a tactical bottom. Obviously whether that is at 5700, 5800, 5900, or 6000+ is hard to say at this point.....:)

GL

J

gadgetmind

Jegersmart wrote: »

Obviously whether that is at 5700, 5800, 5900, or 6000+ is hard to say at this point.....:)

Or indeed at any point.

Jegersmart

gadgetmind wrote: »

Or indeed at any point.

To a large degree yes, but once certain levels have broken in either direction then technical analysis can give us clues as to where to look for support and resistance and so on. As an example, the recent tactical low on the SPX of 1485 is a short term support point, and if that breaks there are possible targets below.

Clearly, when applying these to funds and longer term investments one would use far longer timescales and patterns if one was so inclined.

TA is not an exact science of course, and I use it conjunction with other tools - but over the last 20 years I have seen so many instances where TA can give you a good idea of where to look for entry and exit points or areas.....if you haven't tried it I would recommend adding another bolt to your crossbow if you have the time:)

J

cepheus

My thought when writing the OP, was the ISA season may be fuelling a bubble?

This was written a month ago

UK pension funds own around £3tn in assets, there are around £25tn to £30tn globally, which can be married with the £30tn in sovereign wealth funds. These are the main shareholders and their wealth is often characterised as a wall of money looking for a home. Much of it has sat on the sidelines during the euro crisis, stashed in low interest, safe haven bonds. Now it is on the march and stock markets are one of the chief targets.

The IMF has warned that investors may be getting over-exuberant as markets move up across Europe and the US, given that lack of growth in most developed countries. Economist Sony Kapoor, who runs the thinktank Re-Define, says the markets resemble those cartoon characters that run off a cliff, only to hang in mid-air with their legs still spinning. Europe is still toxic, goes the message, mired as it is in debt and with many big bumps along the road to recovery still to come.

But talk to analysts and they will tell you that the UK's top companies are cheap in relation to their predicted forward earnings and with central bank support stretching over the horizon, now is the time to invest. Most of these earnings will be generated overseas and will be little taxed.

After two years of repeated warnings about the disintegration of the eurozone (first a Grexit, then Spain and Italy leaving by the backdoor), doomsayer analysts are characterised as the boy who cried wolf. The sea is calmer and investors have set sail.

cepheus

Business and Consumer Confidence: Economic Indicators page - Commons Library Standard Note

Published 01 March 2013 | Standard notes SN02817
Authors: Daniel Harari
Topic: Consumers, Economic situation, Manufacturing industries

• The European Commission survey of economic sentiment showed that the overall UK sentiment index fell by 0.5 points to 97.1. The eurozone index rose by 1.6 points to 91.1.
• According to GfK, overall consumer confidence was -26 in February, unchanged from January. There was a slight improvement in consumers reporting improved personal finances over the past year.
• The CBI Industrial Trends survey showed that in February 2013, more manufacturers thought that output would rise over the next three months than thought it would fall – the difference was +5% of firms. This is a decrease from a balance of +8% in January.

gadgetmind

Jegersmart wrote: »

if you haven't tried it I would recommend adding another bolt to your crossbow if you have the time

I'm just not sure in which direction said bolt would fire!

merlingrey

Heres what a bubble looks like, and this is the scary one:


http://jdmoyer.com/2011/03/25/how-it-might-go-down/