"Davis Double Play ": Mr. Market & Asset Bubbles- Part 2
I blogged about the concept of "Davis Double Play" (here ) and explained that there are two very important components in determining the index of stock markets i.e P (Index)= EPS x PE
Now, after the start of QT, we continue to see the market is adjusting to the "market expectation" of PE and compressing the PE to a more reasonable level. More and more data points showed that the US economy is slowing down from " Real Retail Sales, Housing Starts, Philly Fed Manufacturing Index, Empire State Manufacturing, etc.."
ECRI Weekly Leading Index Update < Sources: advisorperspectives.com>
With such a high inflation data, the Consumer Sentiment by the University of Michigan also at a level never seen after GFC( Global Finance Crisis ), now is much lower than during the Covid-19 pandemic time.
The risk of recession is growing. Here’s why recessions may be inevitable <Source: cnbc.com>
I think the market may continue to be volatile and have pressure on lower-earning ( EPS) if the recession really hit and affects the overall consumer spending which accounted for more than 75% of GDP. I guess there will be a trade-off needed when your income remains unchanged but the higher gasoline price taking up more of your disposable income, the spending on other items may need to be cut or reduced.
Choosing the best trendline for your data <source: microsoft.com>
** Based on this new "Power" Trendline, the current value of the long-term trend moves upward to 3,200 instead of around 3,000 by using a linear Trendline.
STI finally end this week at -1.28% YTD with banks and REITs also dropping quite a lot. If you look at the trend line, it is still far from "crisis level", not really cheap for me to add more at this moment.