As Ed Yardeni stated this morning in his daily research piece, most market “melt-ups” are led by a P/E expansion. The current “Melt Up” is being led by an earnings expansion. From Ed Yardeni:
“The short answer to the meltup question is that the stock market is in a meltup, in our opinion; but as we’ve been noting since the beginning of the year, it’s a very unusual earnings-led meltup. Past stock market meltups, particularly the ones that occurred during 1929, 1987, and 1999, were P/E-led meltups. That’s why we’ve been raising the odds of a meltup recently without raising the odds of a meltdown. Here is a brief recap of our subjective odds on a normal bull market, a meltup, and a meltdown:
(1) January 16, 2018 meltup odds raised to 70%. We changed the odds of steady/meltup/meltdown from 20/55/25 to 5/70/25.
(2) October 9, 2017 meltup odds raised to 55%. We changed from 30/50/20 to 20/55/25.
(3) August 2, 2017 meltup odds raised to 50%. We changed from 40/40/20 to 30/50/20.
(4) March 6, 2017 meltup odds raised to 40%. We changed from 60/30/10 to 40/40/20.
(5) May 9, 2013 meltup odds at 30%. Established odds at 60/30/10.”
