The DOW and NASDAQ continue to remain at record levels and not every single analyst is bearish on where the market is headed. Though geopolitical events in the Middle East and spiraling US debt are already weighing on the market.
In addition, some who study the performance of the US stock market from a historical perspective believe the proverbial bottom is about to fall out.
One such expert is James Montier, a fellow at the United Kingdom’s University of Durham and an employee at GMO, an investment company that manages over $100 billion.
Mr. Montier bases his prediction on the coming fall of the US stock market on record profit margins. Currently, US companies on average report a profit margin of well over 9%. That sounds good, but the overall average since the early 1950’s is just 5.9%.
According to James Montier, profit margins historically have “reverted to the mean”. Translation, as profit margins retreat back to their average, stock prices will retreat as well and even recent history has shown that crash could happen in a "flash".
The bottom line is it has been quite a run as of late, but those who study the history of the stock market say the smart money should be moving to cash.
Opportunities for great deals have always presented themselves in the past and high quality stocks will be ripe for the picking once history invariably repeats itself.