Investors should always be looking for what will be instead of what has been, so the investing playbook for the next few years should look far different from what has been seen over the past few years. The bull market in stocks off the lows of ’09 had tailwinds of a cyclical economic recovery, a strong earnings rebound, record high profit margins, multiple rounds of quantitative easing and zero interest rates that drove an extraordinary level of stock buyback activity that was only last seen in 2006 and 2007.
The result of the bull run however has brought market valuations to levels only seen in the year 2000 according to a variety of metrics. As valuations only matter when they do and expensive can always get more expensive (as evidenced by the late 1990’s bull market,) we must ask the question: have we reached a point where valuations suddenly matter for stocks in terms of future market behavior? My answer is an emphatic yes.
