After gaining 9% in 6 days, the inventory market is nearing “overbought” territory, some merchants say

Is it time to review this monster rally again?

With the S&P 500 rising 9% in six trading sessions to an all-time high (albeit not a closing high) during the day, many parts of the market are viewing it as overbought. Others agree but say it doesn’t matter in this weird mix of election and vaccination news. Who is right?

It depends on.

On the bullish side, the technicians are all excited. Even before the vaccine news, Lowry Research, the oldest tech research company in the United States, believed that because of last week’s outbreak, “the latest buying opportunity is in late March advance”.

However, the extent of the rally in cyclical / value sectors is hotly debated. Banks are up 15% in the last six trading sessions, energy 15% and industrials 12%. Many are now trading on reviews that have not been seen in years.

Part of the problem – and the source of the disagreement – is that “value / cyclical” is a diverse group. Citigroup’s Tobias Levkovich notes that there are three “buckets” of value stocks: financials, industrials and the “Covid-affected groups” such as travel and leisure.

The “Covid-affected groups” like airlines have been decimated. Delta, for example, which was priced at $ 60 before the virus outbreak, recently traded at $ 30, closing at $ 36 on Monday. This is a rally, but it still has to go so far that the latest rally isn’t an obstacle: “Any sort of solution to the pandemic really does bring its chances to life and you see stocks are reacting significantly,” Levkovich told CNBC.

But other sectors of value see valuations – and rallies – that matter. Bank stocks have also started to generate higher bond yields. Some bank stocks are trading many times higher than in recent years:

Bank P / E Forward Multiples: Multi-year highs

  • US Bancorp 14
  • JPMorgan 13
  • Fifth third 12
  • PNC 16

However, the biggest driving force was the industrial companies, which had moved even before the vaccine news, as industrial reps like ISM Manufacturing had improved. Monday’s rally took many to new highs (Eaton, Corning, Dover, Ingersoll-Rand), taking these companies’ forward multiples to areas they haven’t seen in years:

Industrial P / E / Multiples: All at 10-year highs

  • Honeywell 25
  • Sherwin Williams 26
  • Ingersoll Rand 25
  • General Electric 25
  • Deere 24

For Levkovich, who began his career as an industrial analyst, this is a sad fact for stocks in this space: “They always pay for them when they have squeezed profits. So the valuation criteria we look at and which were the most predictive forecast of the Share price performance still says that you want to be in these industrial conglomerates and that there are still opportunities to steer performance up. “

Don’t tell the Wall Street bulls to worry about high P / E ratios. Fundstrat’s Tom Lee is typical, “I think rating sensitivity is the wrong metric people should be. I think we could collect another 10% from here,” he told CNBC.

This is an old-school Wall Street trick: let the multipliers go up because the prospect of an improving economy – and higher incomes – is the classic reason multipliers go up.

The only difference is that the market is at an all-time high and a lot of things that have moved in the value range have risen very quickly.

And in case the cops need more ammunition, you can always pull out the Federal Reserve, which is backing the markets, whether it’s needed or not, as BMO’s Brian Belski pointed out in our air: “I think stocks are I think , the most important thing to remember – the Fed has basically signaled that we will be here for three years … this is a period of risk. “

Conclusion: Wall Street is anticipating a “normalization” of the economy as early as 2021. You can see this in the result of the S&P 500:

Profit estimates for S&P 500

  • 2019: $ 162
  • 2020 is: $ 136
  • 2021 est .: 168 USD

Source: Refinitive

See? A complete winning round. Back to normal. It’s 2019 again.

This reopening story had better be perfect.

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