The S&P 500 has rallied by 24.48% year-to-date, frequently hitting new all-time highs lately. Some of the main factors behind this market optimism are the promise of extended periods of easy monetary policy from the Federal Reserve, and increasing chances of a US-China Phase 1 trade deal. Nevertheless, with these factors being mostly priced into the market now, and valuations appearing frothy, reason to buy into this rally seem scarce. Furthermore, another unique dimension of market analysis, “astrological analysis”, is signaling severe trouble ahead for the markets and the broader economy.

S&P 500 2019 YTD Performance

Source: Yahoo Finance

Expensive market with weak internals

The current PE ratio for the S&P 500 stands at 24.23, and the forward PE is at 18.91. At the middle of this year, 2020 earnings estimates implied a 12.9% earnings growth rate, and it has since declined to 9.9%. Hence, with stock prices rallying and forward earnings estimates falling, the market has inevitably become expensive. Furthermore, 2020 forward earnings growth is expected to further decline to around 6%, making the case for pushing stock prices even higher impractical.

In fact, the recent new highs made by the market have not been backed by supportive market internals, contrarily; they reflect signs of weakness and concern. In fact, according to NYSE market internals, only 3.5% of all stocks made new highs when the markets made all-time highs a week ago. Moreover, more than 40% of stocks are still below their 200-day averages, undermining the market’s bullish rally, and making it very sensitive to any potential bearish development. When trying to guess potential bearish developments, the most popular tends to be the possibility of US-China trade negotiations breaking down. However, there are high chances of a more drastic event unfolding over the coming months that will shake both the global economy and markets.

Astrological patterns

A distinctive form of analysis of global affairs, economy and markets is astrological analysis. Undoubtedly, the study of solar system movements and patterns is likely to come across as bizarre and dubious to certain investors, but its ability to foreshadow major world events and developments should not be undermined, particularly black swan events.

Without getting too deep into the complex concepts of planetary positions and movements, it is important to understand the implications of the upcoming astrological conditions. From late-December 2019 to late-January 2020, an astrological position that was last witnessed during the 9/11 attacks is about to come into formation.

So the question is, what will this position bring about this time? There are high chances of a catastrophic event happening that will be analogous to the 9/11 attacks. Alternatively, this astrological position could lead to the revelation of a leader’s hefty scandal that would imply enormous ramifications for global markets. Though the chances of a 9/11-like event poses a clearer market-moving risk. Investors should keep in mind that such an event would not necessarily take place in the US again, but could happen anywhere in the world. In fact, amid intensifying tensions in Kashmir following Indian Prime Minister Modi’s actions to revoke Kashmir’s special status this year, and deteriorating relations with Pakistan, there are probable chances of the foreshadowed catastrophic event taking place in India this time. India is a major growth engine contributing to world GDP, and a country where numerous multinationals are investing heavily to exploit its attractive demographics and growth potential. Hence any potential calamity in this nation will undoubtedly have ripple effects across the global economy.

Wherever in the world this catastrophic event takes place, investors should apprehend the fact that it will have colossal negative consequences for global markets. Therefore, it would not be practical to position heavily long in risky assets until at least this market-moving event has passed, and the extent of its ramifications for the global economy are understood, as it has the potential to drastically alter and dictate the investment landscape of the new decade, or at least the next couple of years.

Investors being naïve regarding economic and market outlook

Amid the increasingly dovish Fed and improving US-China trade developments, investors seem to be very certain that next year the economy will be in better shape than previously feared. Earlier in the year, the yield curve had been notably inverted at widely watched sections, with the 10yr yield below the 3-month yield and 2yr yield. While the yield curve has steepened out of these inverted sections, the front-end of the curve still remains inverted, with the 1yr yield below the 1-month yield. Many investors believe that because the yield curve is no longer inverted at the widely watched sections, a recession will be averted. Those investors should keep in mind that following each of the previous three inversions studied in a previous article, the yield curve had also steepened out of inversion territory, and a recession had followed each time despite the inversion reversal. Hence market participants are becoming a bit naïve in terms of their optimistic outlook for the economy. Even if a recession fails to occur following this inversion, we will undeniably face a plunge in economic growth worldwide following the calamity anticipated through astrological patterns over the coming months.

Moreover, given the relentless rally in stocks over the last decade, and the market making new all-time highs lately, the market is pulling forward future returns. Hence as we go into the new decade, we are likely to witness low total returns for at least the next few years. Furthermore, while passive investing has offered superior returns over the active investing style this past decade, investors should focus on actively picking out securities that have the potential to outperform, amid lower expected total returns for the broader market going ahead.

Bottom Line

With positive developments mostly priced into the market, there is little reason to buy into this rally, especially as 2020 forward earnings estimates decline further. Additionally, astrological positioning is signaling a calamitous black swan event ahead, the likes of which was witnessed during 9/11 back in 2001. Therefore, investors should strongly avoid building considerable long positions in risky assets, at least until the catastrophe has transpired and we get more clarity regarding the economic/ market outlook. Investors should not undermine the ability of the inverted yield curve to foreshadow a potential recession ahead, as at the very least we could be heading for deteriorating economic conditions ahead.