Irrational Exuberance 2.0?
Let’s get this straight: the market is waiting for regulatory rollback, tax cuts and infrastructure spending. For this reason, investors are loving the equity reflation trade and the Dow is firmly over 20,000.
But hold on a second here. There has been no rollback yet in financial regulations. Obamacare repeal and replace is a mystery and might not happen until 2018. The Republicans said recently they want full tax reform and not just a corporate tax cut, so that can take the wind out of the fiscal sails. And Donald Trump needs the Democrats, who hate his guts, to sign an infrastructure bill.
In the meantime, stocks are looking more and more overvalued given a murky political picture, susceptible to high, gale force winds.
Florida-based research firm ValuEngine warns that overvalued stocks now make up 69.18% of the stocks they monitor and 29.75% of those high value equities are overvalued by at least 20%. Some 16 sectors are calculated to be overvalued, based on their proprietary models.