Today, as then, asset managers are forced to engage in a market rally, despite realizing that it could end badly, writes Citi’s chief stock market strategist Tobias Levkowicz.
Dynamics of the P / S ratio S&P 500 Index… Source: Bloomberg
The bubble continues to inflate in the US stock market, as evidenced by excessive investor enthusiasm, overbought and conversations that “this time will be different,” writes Citi’s chief stock market strategist Tobias Levkovich.
“It is worth noting the parallels with 1999,” the expert points out. “Today, as then, asset managers are forced to participate in a market rally, despite the understanding that it could end badly. Now it is not very fashionable to talk about the risks of a market decline, but discipline makes us wary of just such a scenario. “
Large-scale fiscal stimulus and super-soft policy of the Fed created the impression that there is no need to think about risks, the expert notes. However, downgraded earnings forecasts for companies, expectations of an imminent cut in stimulus and the likelihood of alarming inflation data call for caution.
Levkovich’s forecast for the S&P 500 at the end of the year is 3800 points, which is the most bearish among experts surveyed by Bloomberg.
The S&P 500 rose more than 80% from last March lows and closed at another all-time high on Wednesday following the publication of the dovish FRS minutes of the March 17 meeting.
The P / S * ratio of this index exceeded 3, which is also an all-time high (see chart above).