Another week has gone by and once again, the S&P500 has gone pretty much nowhere. Last week, the large cap index closed virtually unchanged. Volume was extremely light, in large part due to the end-of-August vacation season. And volatility also barely budged; it continued to hold near the lows of 2016.

To mirror the lack of direction in the US equity markets, the economic news flow was also very slow. The Empire State Manufacturing Index missed badly, relative to expectations. Consumer prices met expectations; although consumer prices excluding food and energy rose slightly less than expected. Industrial production came in stronger than expected. Jobless claims were slightly better as well. The Philly Fed business outlook only met expectations and leading indicators beat consensus estimates.

In terms of technical analysis, the picture is as follows—upward price momentum is stalling (a reasonable conclusion after two straight weeks of going nowhere) but prices remained pinned up against or near all-time highs. As mentioned last week, from these lofty, overbought levels, it’s normal to see some sort of modest pullback. But in a world where central banks have pushed short term interest rates down to below zero around the world, what’s been normal over the last 100 years may not be so normal today.

But what remains true, despite the massively overbought and overvalued US equity markets is this simple fact—the more equity markets rise today, the lower the remaining returns will be in the future for anyone who remains in these markets. What this means is that the huge appreciation in equity markets over the last several years has reduced the prospective returns for everyone who invests in equities today.

Clearly, the converse is also true, but for the prospective returns to jump back up even to reasonably normal levels, the equity markets would have to retreat by a meaningful percentage. And by meaningful, we don’t mean just 10% or 20%, but something much more than 30%.

Back in 1929, a nationally known economist from Yale declared that US “stock prices have reached what looks like a permanently high plateau”.  He was proven to be spectacularly wrong, after stocks crashed over the ensuing three to four years.

Nobody knows exactly when, but today’s high plateau will also not endure. And when it breaks, the downside—-as informed by history—-could be depressingly huge.

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