Everything I have seen over the past week says that SPY ceiling is around 550 even if we see the 10% forecasted earnings growth this year. Reason is: PE compression. US stocks will be sold and Rest of the world stocks will be bought or they will just buy overseas bonds or gold.
If foreign investors pull their money out, we will get serious PE compression taking us down to historical avg PE of 15, and if we do not get earning growth then with EPS of 250, we get SPY = 375.
So this is the bear case, I am kind of in agreement with it, but I am looking for a list of contrarian reasons which will send stocks higher.
Let me start the list:
1. Every country in the world will do worse than US so there is no better alternative, so not much money will flow out. But that does not help the case for UST bonds since they are not considered as safe as before. Also USD is in danger of depreciating another 10%.
2. We will get corporate tax cuts that will help earnings. They can easily cut it to 10% to make US more competitive. They can take money from tariffs and move into this bucket to compensate.
3. Regulation reduction may help cut costs (but it increases risk).
4. US Federal administration gets tamed by congress and they are not allowed to sabotage the economy anymore or threaten allies.
5. TINA, there is no alternative, there is still 7 trillion sitting on the sidelines and around 50 billion in savings comes into the system looking to be invested. IMO, this is the biggest reason why all assets are inflated and may remain inflated. Lots of money chasing limited amount of assets, bidding them up. Only caveat is: if US Federal administration keeps doing crazy stuff, then around 20 trillion in foreign capital will start leaving US assets, that will be a big drag on the price of assets.
In nutshell I still don't see alternate to US economy or companies yet. IMO, China will do better in future just because they do not have to deal with messy democracy but I can't invest there, since it's not a free market, govt can fuck the profit of the companies any damn day like they did few years ago.
Europe is too divided and fragmented, they can never get all the members on the same page ever, it's like watching 27 siblings bickering about their share of the pie every fucking time, all of them seem like starving, never content.
IMO, we are going to get global recession, this is one of the plans of US Federal govt since they want interest rate to go lower so that they can reduce the trillion in interest payment every year.