The market can turn on a dime, NDX-100 Historical Chart

NDX-100 NASDAQ Index 2002 to May 2017

I'm posting this chart today because a friend of many told me that he was just starting to get aggressive in the market.  Actually in the process of rolling an annuity into something that would do better.  It struck me as classic behavior in a manic market top.  Nonsense, most would say.  Look how great the market is doing there is nothing stopping this.  Well look at the above chart.  What do you think the people were saying and doing in October 2007?  Do you think anyone that said the markets were about to crash in October 2007 were paid much heed?   But then look at November of 2007 and the following months.  It just got worse, with a single dead cat bounce.

The list of reasons why the conditions now are beginning to mimic those surrounding the housing bubble crash and dotcom crash is long.  And I plan to post on them in the future.  Virtually every line of reasoning used to dispel the bears can be easily be explained away as wrong or an outright lie.  The latest reason is that corporate earnings are up over 13% in the last year.

Here are some real numbers.  For fiscal 2016, Oct-Sept, corporate income tax payments were down 13% over 2015.  So if we are really up 13% earnings are at 2015 levels while stock prices are up 30%.  It looks like earnings have some real moving to do to justify the spike.  So let's look at a more recent period, the last 12 months.  Well that shows March 2016 to April 2107 corporate income tax payments were down 7.4% over the prior period.  And March 2015 to April 2016 were down 4% over the prior period.  It seems to me while some fancy corporate accounting was used to boost stock prices this last quarter, and others have written about this, the real trend is an accelerating decrease in corporate earnings as opposed to a sudden reversal to increasing earnings.  Maybe that is why the Schiller PE is 30.

Another recent reason for excitement was the 210k jobs supposedly added in April.  That was a giant lie as well.  With a multitude of store closings the report actually tried to claim retail jobs were up.  The underlying data set proves that was a lie/mistake.  The reality is about 175k jobs were added.  The job growth pace was about 1.45%., and in a decelerating trend  Guess what, in April 2007 the pace of job gains was about 1.25%  and decelerating.