The fact that many share markets are at all time highs has prompted news media to talk of an imminent share market crash. While all time highs have been a hallmark of recent crashes, there is little to suggest that the current situation warrants such concerns.
The normal signs that come before a major crash, such as people starting up brokerage accounts, who have never thought about trading before, people taking out big margins loans and general talk of big money to be made out of the market are not present in this market.
If there are any bubbles, it is in Bitcoin, with news of a Finnish man selling all his earthly possessions to buy all the Bitcoin he can.
The S&P 500 is up 65% since its peak of 2000, a below average compound growth rate of just 3%. This suggests a relatively modest valuation as historically the stock market has grown at around 8%-10% per annum.
Also US dividend yields are near the middle of their historical range, suggesting fair valuation. Many other stock markets like Canada, Japan and Switzerland are trading at historically high dividend yields.
In Australia the big banks like Commonwealth Bank of Australia (ASX: CBA) and Australia & New Zealand Banking Group (ASX: ANZ) for example still offer yields around 5.5% plus franking credits.
At present, inflation is creeping up slowly and this will probably cause interest rates to rise, but interest rates are too low, with most European countries having negative interest rates and no developed country has rates over 2%.
A slight tightening in monetary conditions and a small increase in interest rates will keep inflation under control without causing a market crash.
A slight increase in inflation can be favorable to companies as it encourages consumers to buy now before prices rise and makes it easier for companies to raise prices and improve profit margins.
Crashes rarely happen when everyone thinks they are going to and if you look at insider trades over the last three months on the ASX you will see the majority (80%) are buys.
Overall there is still value and growth to be found.
