Here are some additional readings which explore dimensions not covered in the previous post.
One sign that investors are increasingly willing to pay more for less: Compared with the combined sales of all its companies, the S&P 500 is trading at its highest level since 2000.
Nevertheless, it’s far from obvious what will trigger the next downturn or when investors should get out.
Everything is Crazy and Markets are not Freaking Out
Financial planners have a huge shock in store for them from groundbreaking research into the stock market’s long-term risk.
Contrary to what everyone for years has assured us, investing in the stock market does not become safer as our holding periods lengthen. On the contrary, risk increases the longer we hold stocks. This means we no longer can reassure ourselves or our clients that things will work out only if we are willing to hold on long enough.
The ownership structure of the stock market is, I think, a possible reason why equity markets have persisted at high valuations. Retirement-related holders are almost compelled to hold equities because there are few alternatives to earn cash to satisfy the obligations/expectations of people requiring an income in retirement. Further, other holders (mutual funds and their ilk) find it difficult to sit on the sidelines to await more enticing valuations - this as a result of pressure from their clients for "action" and the inability of most money managers to "do nothing".
In a white paper, Steven Rosenthal and Lydia Austin of the Tax Policy Center have broken out exactly which kind of investors own the stock market. They found that a majority of corporate stock is owned by different types of retirement plans, the largest being IRAs and defined-benefit plans.
Of the $22.8 trillion in stock outstanding (not including US ownership of foreign stock and stock owned by "pass-through entities" such as exchange-traded funds), retirement accounts owned roughly 37%, the most of any type of holder.
Who Actually Owns the Stock Market
Some commentators have attributed part of the stock markets' recent performance to the "Trump effect".
The Trump Effect on Financial Markets
I fear that his sojourn will end very badly: incoherent, inconsistent, prone to dismiss the views of others, etc. Past history is replete with examples of self-centred populists catering to the base instinct of the crowd during challenging times. They often meet bad ends.
Crowds are fickle and moods can change particularly when "encouraged" by the establishment when it feels threatened. The fate of Girolamo Savonarola comes to mind. He was a Dominican friar who preached in Florence in the late 1400's.
He was known for his prophecies of civic glory, the destruction of secular art and culture, and his calls for Christian renewal. He denounced clerical corruption, despotic rule and the exploitation of the poor.
... he instituted an extreme puritanical campaign, enlisting the active help of Florentine youth.
Savonarola hinted at performing miracles to prove his divine mission, but when a rival Franciscan preacher proposed to test that mission by walking through fire, he lost control of the public discourse.
Under torture Savonarola confessed to having invented his prophecies and visions, then recanted, then confessed again. In his prison cell in the tower of the government palace he composed meditations on Psalms 51 and 31. On the morning of 23 May 1498, the three friars were led out into the main square where, before a tribunal of high clerics and government officials, they were condemned as heretics and schismatics, and sentenced to die forthwith. Stripped of their Dominican garments in ritual degradation, they mounted the scaffold in their thin white shirts. Each on a separate gallows, they were hanged, while fires were ignited below them to consume their bodies. To prevent devotees from searching for relics, their ashes were carted away and scattered in the Arno.
https://en.wikipedia.org/wiki/Girolamo_Savonarola
Execution of Florentine friar Savonarola
The "undoing" of President Trump is a distinct possibility: to date he has demonstrated a capacity to demean the establishment and divide large segments of his electorate. The consequences of his potential comeuppance may include volatile movements in markets - an event which may be the turning point to unleash a torrent of "cleansing" factors such as market over-valuations, high levels of government debt etc.
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