Stock Market Bubble or More Room to Run?
The following is an excerpt from our recent research piece "Stock Market Bubble or More Room to Run?" The full report can be found here:http://pathlightinvestors.com/sites/default/files/pdfs/Bubble%20or%20Room%20to%20Run%20Nov%202013t.pdf
At the time of this writing, U.S. stock markets are at all-time highs, and home prices in most markets have skyrocketed to near 2007 levels—all despite modest economic growth, elevated unemployment, and continued fighting in Washington D.C. This combination of strong investment performance and a weak macro environment has many investors believing that a bubble is brewing in stocks. They believe that artificially low interest rates have created false appreciation, that money printing will lead to rampant inflation, and, finally, that the bubble will POP, leading to another round of despair and
BUT WAIT—there is another sort of believer: those who focus on the indisputable facts—facts that show the
U.S. economy continues to grow, those who understand that millions of private sector jobs have been created over the
last four years, those who believe inflation remains tame, those who believe stocks are not excessively valued relative to
history, and those who are excited that U.S. government deficits are the lowest in many years. These sides couldn’t be farther apart, as evidenced by how easy it is to find prognostications on the future value of the S&P 500. To put it starkly, 2014 price targets range from 1,400 to 2,100, which translate into returns from current levels ranging from -21% to +19%, a 40% difference. This begs the question,who it right?