From Citi:
Bubble Time — Maturing bull markets often produce bubbles (It’s Bubble Time). Given the recent market moves, we revisit our analysis and check how the different assets trade compared to their historical valuations.
Bubble Assets — Following last month’s rebound, European government bonds are back into bubble territory (Figure 1). DM equities still look only mildly expensive. EM equities and commodities have become even cheaper compared to three months ago.
Bubble Regions — Across major equity markets, the US looks most bubbly trading at 1.0 standard deviation (sd) above average. It looks even more expensive (1.9 sd) when Financials are excluded. Continental Europe and Japan look less stretched (0.3 sd) even excluding Financials (1.0 sd and 0.8 sd respectively). Commodity heavy markets such as EM, UK and Australia all trade at a discount (Figure 2).
Bubble Pragmatists — Rate hikes eventually burst bubbles, but it usually takes at least three. We think it is still too early to fight this bull market. We remain Overweight the bubbly Health Care and Consumer Discretionary sectors. For balance, we are also Overweight the unbubbly Financials.
That nicely accords with my own views on market economics right now though I see returns at this point as pennies in front of the steamroller.
