CIO Thoughts: Have We Reached Peak Sentiment?



Should you be worried about a high CAPE ratio?


A recent article in Advisor Perspectives highlighted how high CAPE ratios have historically resulted in low S&P 500 returns.


Chart Source: https://go.astoriaadvisors.com/e/939763/pe-as-a-predictor-of-returns-1/c17525/1456001806?h=FzF4fHaPa0AKxwM7jliJ6EzoqMpPPbGzFh7BCjih5uc



The Shiller PE ratio is something that is fiercely debated in the investment community. My takeaway:

  • Don't obsess over it but keep it in the big picture.

  • It's a great tool to assess the state of affairs with regards to valuations, but hard to manage portfolios as it is not great at timing.

  • There are more effective valuation and risk management techniques that better serve for managing portfolios.

  • The larger concern that I have for markets is that we have likely reached peak sentiment.

What is the catalyst to take markets higher when we have:

  1. Full Valuations

  2. Peak Sentiment

  3. Allocations at all time highs

  4. Earnings growth & macro data have skyrocketed off of the March 2020 lows

See the following tweets that I have sent out in recent weeks:






Best,

Astoria Portfolio Advisors


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