Chief Investment Strategist, The Freeport Society
Talk about a market that’s priced for perfection…
The S&P 500 trades at 28 times reported earnings.
That means investors are paying $28 for every $1 of earnings the S&P 500 companies have booked over the past 12 months.
That puts it between the 90th and 95th percentile of most expensive markets in history, depending on what timeframe you choose.
It also trades at about 3.1 times sales.
On that basis, today’s market is as the 2021 Covid FOMO market was: the most expensive stock market in history.
Even more expensive than during the Roaring 20s and 1990s dot-com boom.
Don’t get me wrong…
There’s plenty for us as investors to be excited about. We’re still in the early stages of an AI revolution that is set to transform our economy in ways we can barely imagine.
But then again…
Talking heads in the financial media said something similar in the late 1990s as the dot-com boom raged on Wall Street.
And we know how that turned out.
They were right about the technology changing our lives but dead wrong about the stock market.
The S&P 500 lost half its value in the 2000-2002 bear market.
And the tech-heavy Nasdaq lost 77% before finally finding a bottom.
It was a similar story in the 1920s.
Permanently High Plateau
Take Irving Fisher, the celebrated Yale economist.
On October 16, 1929 he famously declared that stock prices had reached a “permanently high plateau.”
Nine days later, on October 24, we got the Black Thursday crash that ushered in the Great Depression.
I’ve been doing this long enough to know that you can’t use valuations to time the market. A market that’s crazy expensive can get even more crazy expensive.
But you tell me…
Does it make a lot of sense to make major new buy-and-hold investments at these levels?
As I’ve hammered on for the past year and half, a frothy market like this is better suited for short-term trading.
It’s also great for income investing.
A good income investment allows you to realize a return no matter what the market does. You don’t have to get the timing just right. You can afford to be patient because you’re getting paid handsomely to wait.
A Tasty Dividend Yield for the Age of Chaos
Last week, I joined Yahoo!Finance to talk about opportunities in high-yielding business development companies.
I discussed Main Street Capital (MAIN), one of my favorite monthly-paying dividend machines.
Its regular dividend payment gives MAIN a yield of 5%. And its special dividends over the past year bump the total yield over 7%. That’s fantastic in any environment.
Even better, the payout should rise over time. The company has increased its dividend payment by 132% since 2007, staying well ahead of inflation.
In an Age of Chaos, I love the stability of dividends in the bank.
The market could explode higher from here based on AI revolution optimism, deregulation, or potential Fed rate cuts. Or it could crater if the lingering effects of the trade war dent corporate profits or some new macro shock comes down the pipeline.
Or it might explode higher and then crater.
It’s impossible to say with any certainty how exactly this goes. But if you’re getting paid in cold, hard cash, you don’t have to sweat it.
So, make sure Main Street Capital is on your radar.
To watch the video of me talking this through on Yahoo!Finance, click on the image below.
To life, liberty, and the pursuit of wealth.