After being a market participant day in and day out for more than a dozen years one gets a feel for different market cycles and important 'moments' in the market. Sometimes we can't point to one specific data point or a single chart, but an accumulation of data and evidence leads to a conclusion about which we feel strongly. More strongly than a typical market observation or analysis. I believe one such moment is at hand.
Equity valuations have rarely been so lofty, complacency has rarely been so high, and all of this is occurring as financial conditions are beginning to tighten.
An interesting chart showing the ratio of the S&P 500 price/sales ratio relative to the VIX:
Equity valuation have only been higher twice before; before the 1929 crash and the 2000 dot-com bubble:
Meanwhile, the Fed is forced to tighten in order to confront a growing inflation threat which according to the latest data is creeping into every sector of consumer goods:
And China credit creation (historically a strong tell for global financial conditions) is falling off a cliff:
This post is not scientific. However, my feel for the market has been attuned for more than 13 years and my spidey senses tell me that all is not well and a major market accident is right around the corner. Let's see what happens after tomorrow's Fed rate hike, FOMC announcement, and chairman's press conference.
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