Is The Stock Market Overvalued?

Join us at the Independent Investor Summit in NYC on September 12th!

Markets are breaking records. Public equities are outperforming. And individual investors are driving it all. It’s officially the rise of the retail investor.

On September 12th in NYC, I’m hosting the Independent Investor Summit — a one-day event built exclusively for self-directed investors.

We’re bringing together some of the smartest public market investors I know for a full day of macro insights, market predictions, and one-on-one fireside chats. Speakers include Darius Dale, Jordi Visser, Jeff Park, Chris Camillo, Tom Sosnoff, Jon & Pete Najarian…plus more to be announced.

Pomp Letter subscribers can use code POMPLETTER50 for 50% off GA tickets if you register here by August 8th. See you all there.

To investors,

It seems like every day someone is sounding the alarm that the US stock market is overvalued. The most recent example was Apollo’s Torsten Slok who shared this chart that takes the S&P 500’s trend from 2023 to today and overlays it with the trend from 1996 to the dot com bust in 2000.

Does the two trends look visually the same? Absolutely. Does that mean history will repeat? No one knows, so we have to dig deeper into the data.

Another area of concern comes from Wisdom Tree’s Jeff Weniger who points out “The S&P 100 now has 27.2% of its total value in stocks that have a P/E of at least 50. There is only one company that has a P/E below 10.”

Is that a crazy data point? Absolutely. Think about it…more than 1 out of every 4 companies in the S&P 100 have a P/E above 50 and 2 out of every 3 companies have a P/E ratio above 30.

Not exactly normal.

But there are positive parts of the market that are not normal too. For example, Mike Zaccardi shows this graph from Wei Li at Blackrock, which highlights that the Mag 7 has actually become cheaper so far this year.

That isn’t supposed to happen in a bubble! And it definitely is not supposed to happen when the Mag 7 is driving so much of the S&P 500 return or when China, Japan, UK, US, and emerging markets are all getting more expensive on a valuation basis.

Remember, big tech is destroying small caps in performance year-to-date.

So what is driving this ridiculous growth? Well, there are many factors but retail investors are a big part of the story. Goldman says these individual self-directed investors are now buying more that $3 billion of tech stocks on a daily basis, which is the highest measurement in history.

Before you mock and ridicule the retail investor, remember they were buying the dip in April and May when Wall Street was predicting doom and gloom. Retail made a killing in the historic market recovery that happened in the last few months, so they aren’t exactly idiots.

And if you needed further proof of retail investors’ skill, they have much more exposure to bitcoin and cryptocurrencies. Bank of America is now reporting “the average professional fund manager allocation toward crypto is 0.3% of AUM. 75% of Fund Managers have zero allocation.”

Stocks are increasing in value. Retail is pouring capital into the market. Professional investors are sounding the alarm bell. Maybe a big market crash is right around the corner? Maybe the “bubble” is about to pop?

Again, no one knows what is going to happen. But one thing is very clear…many of the businesses that everyone is critiquing are too busy to notice because they have been beating earnings expectations. As my friend Jordi Visser recently told me, earnings don’t lie. Take a listen to Jordi’s genius:

We are living through interesting times. The valuation of the stock market is going to be debated over and over again. But long-term investors are content to buy stocks today, buy more stocks if the price goes down, and simply keep buying if prices go up in the coming months. So shut out the noise and just focus on acquiring as much stock as you can. Your job from there is to simply hold on regardless of where the market takes you.

Hope everyone has a great start to their week. I’ll talk to everyone tomorrow.

- Anthony Pompliano

Founder & CEO, Professional Capital Management

Why Bitcoin Is Going Higher This Year with Jordi Visser

Jordi Visser is a macro investor with over 30 years of Wall Street experience. He also writes a Substack called “VisserLabs” and puts out investing YouTube videos.

In this conversation we about the idea of US buying more bitcoin, what’s going on with the CPI & PPI, the idea of revaluing gold, how AI is accelerating everything, and how to evaluate your portfolio.

Enjoy!

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