The valuation of the stock market has been a trendy topic for financial blogs and newspapers as market watchers question whether the stock market is overvalued. There are essentially two schools of thought: On one hand, Robert Shiller, the Nobel-Laureate economist who correctly predicted the 2001 and 2008 recessions in his book Irrational Exuberance, has been calling the stock market overvalued for years, most recently doubling down in the aftermath of August’s correction. On the other hand, Jeremy Siegel, the acclaimed “Wizard of Wharton” for his track record forecasting the stock market’s ups and downs, has repeatedly made the case that, considering today’s low interest rates, the stock market is fairly valued.
Corrections are completely ordinary, healthy market events, yet there seemed to be an outsized negative reaction from investors during the third quarter correction. Surely, the fact that it had been nearly six years between corrections was a major factor and investors who could not stomach the volatility implicit in equities were chased back to the sidelines. Still, some market timers see this as an opportunity to go to cash, predicting a bear market on the horizon. Bear markets don’t pop up out of thin air, though, so we looked for evidence of a recession on the horizon.
These 6 charts show why the U.S. is not heading for a recession.
The S&P 500 lost 11% in six trading days during August’s abrupt selloff. Though it recouped some of the losses early in September, negative economic and political news kept coming pushing equities down further. All Size and Style segments of the market were negative during September as were all economic sectors with the exception of Consumer Staples and Utilities.
The question in investors’ minds is whether we are at the end of a correction or the beginning of an economic downturn.
2:00 PM on September 17th has been circled on investors' calendars for months. That is the date and time the Federal Reserve releases the minutes from its September meeting announcing whether interest rates will be kept at the current, near 0 level or begin the first rate hike as the US economy continues to get back on its feet.
Predictions for what a rate hike means for stocks are in vogue with the general belief that rising interest rates are bad for stocks in the short term but more nuanced takes predict that there is really not much to worry about.
We decided to check on how changing interest rates and stock prices interact to gain an understanding of what to expect when the Fed inevitably does begin to raise interest rates.
Renowned stock market expert Jeremy Siegel went on CNBC's Squawk Box to discuss the Federal Reserve's looming rate hike decision. Interestingly, he sees the possibillity that the Fed increases rates and stocks rally as a result of dovish language and lower "Dot Plot" expectations.