If you are looking for an entry point to get into the stock market, you might be tempted by the recent 2% decline of the NASDAQ. This decline is its steepest fall in close to a year. It is very tempting to think that stocks will continue to go up and any temporary decline is a good time to get in the market. You might want to reconsider that strategy.
First, the US stock market, on the whole, is overvalued. That is right. Stocks have gotten way ahead of themselves if you measure their value based on the classic benchmark of price-to-earnings valuation. It is crazy. Look at the NASDAQ and the biotech stocks in particular. We are talking of double-digit P/E ratios, products that are years in development, and overall uncertainty.
Moreover, the US economy is sending out mixed signals. While there are favorable economic signals in the job sector, pretty much everywhere else there are troubling signals that the economy isn’t as healthy as many boosters claim it to be.
Hanging over all of this is the strong US dollar. The US dollar isn’t strong because the economy is strong. The currency is strengthening because its competitors are weakening. And they are weakening intentionally. Japan and Europe are purposely devaluating their currencies to get their respective economies out of the hole.
There is this unreal atmosphere surrounding the stock market currently. If you are thinking of getting in, I would suggest staying out. A better bet would be to bet on the dollar further.