A Slow Motion Train Wreck

The recent rebound in U.S. equity markets has (as of this writing) pushed the Dow back above “correction territory.” (So does that mean it is back to be erroneously valued?) Of course, studying the past is never a guarantee for what to expect in the future, but let’s review the 2008 crash.

In the chart above I’ve marked off three different periods where investors might have thought, “OK we’ve finally hit rock bottom.” And yet, the tumble during that crash was not over yet.

In my view, the market is still overvalued, even including the drop since December. Especially if the Fed continues with its plans to “normalize,” we should expect to see further declines in U.S. equities. Put differently, the surge in the stock market since 2009 has been built on Fed monetary inflation, not on genuine prosperity.