Here's the latest warning sign that the market is getting too frothy. Consumer confidence has just reached a 9 year high. This morning's consumer confidence number came in at 107.1 versus expectations of 100. This also comes on the heals of a GDP growth figure that broke 3.0%, coming in at 3.2%. Sounds like good news, but it usually means that a bull market will soon be coming to an end.
The last time the consumer confidence number was this high was July 2007. That month, the Dow Jones (DIA) touched 13,695 and the S&P 500 (SPY) hit 1503. Fifteen months later, those same indices were at half that level. This was a financial crisis period, after all, which increased the impact and damage done by the correction. (Leverage is a killer.)
A few days ago, I posted a piece on recent employment data here. Again, the data is pointing to higher interest rates, elevated inflation, and little room to grow economically.
There's no telling where markets will be 15 months from now, but with equity valuations stretch and unemployment bottoming out, it's possible we could be on the verge of a major market correction. Dow Industrials are currently trading near 17 times earnings. Smaller Russell 2000 companies are trading at almost 20 times forward earnings.
The old saying, "the bigger they are, the harder they fall" definitely applies here. Unless the U.S. economy can start propelling upward, we are due for a downturn.
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