Trump Rally Continues, but Is the Party Winding Down?

Chris Gaetano
Published Date:
Dec 9, 2016

Markets continue enjoying record highs in the wake of the election, but several have warned that the party may soon be over, with some even wondering whether we're setting ourselves up for a spectacular fall, according to CNBC. Given recent events, such a prediction may not seem intuitive: the Dow, Nasdaq and S&P 500 all reached record highs on Thursday, according to CNN Money. Bank stocks in particular have been doing very well in the post-election frenzy, with another CNBC article saying that Goldman Sachs alone accounted for nearly a third of the Dow's gains since the election. All this has fueled a surge in the dollar, rising 4 percent in the last months, according to The New York Times, something that traditionally has hurt exports and encouraged imports, which in turn tends to discourage domestic manufacturing, the very thing President-elect Donald Trump railed against during his campaign. 

Despite this, some remain worried. Some use history as a guide. CNBC noted that previous crashes have been preceded by frenetic activity similar to what's happening now. The cyclically adjusted P/E, which is defined by price divided by the average of 10 years of earnings adjusted for inflation, currently stands at 27. The only times this metric was higher were right before the 1929 crash, the 2000 tech crash, and the 2007 housing and stock bubble. The current market frenzy could be indicative, according to CNBC, of overvaluation on a grand scale. 

Others remain bullish, however, according to another CNBC article. Strategist Tom Lee pointed to 1991, when a bull market temporarily slowed before going on to quadruple in value despite skepticism from investors. 

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