This is a huge week for earnings with approximately 200 S&P500 companies reporting. However, earnings have not mattered to S&P500 company / index prices in many years. You are probably aware that as of late January 2018, with the S&P500 setting new all time highs near 2900 we have these metrics:

Top 4 most expensive S&P500 points in time as measured by Price to Sales:

  • 2018
  • 1929 (Great Depression followed)
  • 2000 (47% crash followed. stopped early by Fed)
  • 2007  (57% crash followed. stopped early by Fed)

Top 4 most expensive S&P500 points in time as measured by Price to Earnings (CAPE):

  • 2000 (47% crash followed. stopped early by Fed)
  • 2018
  • 1929 (Great Depression followed)
  • 2007  (57% crash followed. stopped early by Fed)

Thus from a historic perspective 2018 is either 1st or 2nd in terms of being most overpriced / risky.  Ah but “this time it will be different”. 

What does matter is central bank actions and threats of actions to keep the party going. You are all aware that Fed, ECB, and BoJ QE programs have been major forces at stopping  stock markets and economies from crashing for the past decade. However some of you may not be aware that threats of actions from these same central banks also have had an impact on keeping the party going –why else would central bankers have made threats otherwise?  To this end, this week will be a very busy week with no fewer than twelve Fed speeches lined up. Twelve chances to threaten to spike the punch bowl while also dancing to the “everything is great, that’s why we have to raise interest rates” dance.  Plus there is a BoJ announcement on its QE program.