Those Tax Hikes I Warned About...

With that said, to sum it up:

We could see more volatility and more muted gains than what we’ve come to know over the last year.

April is historically strong, but please monitor overvaluation, inflation, bond yields, and potential tax hikes. Be optimistic but realistic. A decline above ~20%, leading to a bear market, appears unlikely. Yet, we could eventually see a minor pullback by the summer, as Deutsche Bank said.

Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck.

Is the S&P Still Too Frothy?

Figure 1- S&P 500 Large Cap Index SPX

On the one hand, according to Sanford C. Bernstein strategists, the S&P 500 index could double by the end of the decade and reach 8,000.

Historically, we could really be at a strong entry point for the long-term too. Over two weeks ago, we marked the first anniversary of this bull market. Historically, S&P 500 bull markets since 1957 on average resulted in price gains of 179% and lasted an average of 5.8 years.

Because the S&P 500 has risen just about 84.81% since March 23, 2020, if history tells us anything, we may just be getting started.

Furthermore, earnings season is off to a roaring start, with companies crushing estimates. There’s no reason to believe this will end either. Not to mention, it’s April, historically the strongest month for stocks.

On the other hand, despite this week’s minor pullback, the S&P 500 continues to hover around record highs as it approaches 4200 for the first time in its history. It’s also potentially historically overvalued. I’m more worried about valuations than I am excited about earnings.

Also, I’m not pleased about potential tax hikes for this frothy market.

I don’t see this as a buyable index at the moment. While it’s not quite as frothy as it was a week ago and more of a HOLD as of April 23, 2021, if it pops anymore, it could be more sellable. I’d prefer a deeper pullback.

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Disclaimer: All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be ...

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Erikas Ivan 1 month ago Member's comment

Thank you! You were really on point on Emerging Markets exposure in the recent months, the advice was very appreciated, pondering Peru and Russia at the moment.