Toppy Tuesday – Can Earnings Sustain S&P 2,400?

What a short, strange trip it’s been.  

As you can see from Afraid to Trade’s S&P chart, we are once again flirting with 2,400 on the S&P with about 1/3 of the companies having reported.  Last time we tested the top was March 2nd, and that did not end well and was followed by 3 weeks of selling but it was all “fixed” in less than a week (on 1/5th the volume) after Team Trump rolled out their “tremendous” tax breaks.  One of our Members just mentioned not taking profits on AAPL, which is up 20% into earnings – in anticipation of lower taxes if he holds.  How many trading decisions are being based on this and have nothing to do with market fundamentals?

Another thing I pointed out to our Members in Live Chat this morning is that, yes, the S&P is up 6% since Jan 1st but the Dollar (which the S&P is priced in and which earnings are calculated in) is down 3.5% since the start of the year:

So we have companies reporting earnings in weak Dollars, which makes them look like they are doing better than they actually are and then we price the shares in weak Dollars, which makes them look like they are more expensive than they actually are and PRESTO! the market delusion is complete!  Add to that some budget-busting tax promises and a very gullible population and you have everything you need to rally a market well past its proper valuation.  

Next comes my favorite part of the bubble, where companies use their overseas money to buy back their own stock at all-time highs along with a slew of very poorly timed M&A actions that boost sector after sector as companies that have no idea what to do with their cash seek acquistions to make it look like they are growing and lock in that fat CEO paycheck for another few years (which, after all, is all that really matters).  

Remember a few years ago, when there was a relentless wave…

Provided courtesy of Phil’s Stock World.