On Thursday's edition of CNBC investment television program Fast Money, one of the resulting captions prompted by the panelists' discussion was "just buy everything."
It was meant to be something of a joke, though not one nobody misunderstood. Everything has been prodded higher of late thanks to Trump-mania, and the fact that it should have ended a while back but didn't suggests this amazing rally intends to last indefinitely.
Nobody really, truly believes that, of course. Nothing lasts forever, and few would disagree that something has to give soon. It's mostly a matter of seeing which asset class flinches first.
See, this rally is unusual in that bonds as well as commodities as well as equities have all done well; usually at least one of those groups suffers and at least one of the other groups does well. To see all three rallying in tandem isn't the norm. Trouble is, their respective rallies have all been like freight trains - you don't want to step in front of them.
The chart below tells the tale. Stocks are up 13% since early November, and while gold and bonds initially tumbled that month as stocks soared, since mid-December gold as well as bonds have been rallying even though equities have as well. Gold is up roughly 8% since its bid-December low, and even bond values have improved by about 4% during that time frame. Yet, stocks have gained 5% since mid-December as well. If this had been a normal environment, stocks would have peeled back beginning in December, as traders migrated out of them and into commodities and fixed income.
The $64,000 question: Are stocks making the erroneous move, or are commodities and bonds errantly moving upward? Mr. Market they let the question go unanswered for a few weeks - and it has - but this is a situation that doesn't persist for very long (as we saw in November, when the three groups finally diverged after following the same basic path between August and October).
Realistically speaking, stocks are the oddball here, pumped up surely by speculation on the positive impact that President Trump may have on corporate bottom lines. The S&P 500's trailing P/E ratio now stands at 21.5, while the forward-looking P/E stands just below 18.0. Both are well above their historical norms, but perhaps more concerning is the fact that both have priced in massive growth expectations that just our plausible even under the best-case Trump scenario.
Gold and bonds, conversely, are moving higher for better-founded reasons. In both cases the lackluster U.S. dollar is helping, and for gold, a sudden and decisive swell of inflation is forcing everyone to reconsider the need for inflation protection; gold is that very well.
Still, what the market should arguably be doing and what the market is actually doing can be two different things for longer than one might expect. As John Maynard Keynes so wisely put it, "The market can stay irrational longer than you can stay solvent."
In other words, just because equities don't make sense at their current values doesn't mean the market cares enough to do anything about it.
On the other hand, it would be naive to think is unlikely deviation from the norm is built to last. They never are. And of the classes in question, stocks are the most vulnerable. Of the three, that's the one you need to worry about the most.