Thoughts

1 am: Banks’ lending standards are easing even more. Medium-long term bullish for the stock market.

The latest reading for Banks’ lending standards (released yesterday) demonstrates that lending standards are easing even more.

Easing lending standards is a medium-long term bullish sign for the stock market and economy. It gives this aged economic expansion and bull market a little more juice via easier loans and more credit.

As you can see, lending standards tend to get tighter in the last rally of a bull market.

1 am: The stock market’s valuation is not “at levels last seen at the top of the dot-com”

One of the latest false narratives from CNBC is that “the stock market today is as overvalued as it was in 2000 – at the top of the dot-com bubble”.

This is based on the U.S. stock market’s price-to-sales ratio, which has exceeded its 2000 peak.

In reality, valuing the stock market based on its price-to-sales ratio doesn’t make a lot of sense. How “valuable” a company is doesn’t depends on its sales (revenues). How “valuable” a company is depends on its earnings (profits). Likewise, how “valuable” the entire stock market is doesn’t depend on its revenues – it depends on how much money Corporate America makes.

The stock market’s price-to-sales ratio has gone up a lot faster than the price-to-earnings ratio merely because companies have higher profit margins – they are able to operate more efficiently. The S&P 500’s P/E ratio is a lot lower than where it was at the top of the dot-com bubble.