The stock market has provided investors with a wild ride throughout the first half of 2018. At the beginning of the year, a huge correction sent stocks plummeting and ended one of the longest and steepest stock market rallies in the history of finance. But the market has so-far recovered to near all-time highs. Whether or not it will be able to continue this rally throughout the short term is a matter of speculation. But there is little doubt that there are some serious underlying economic questions that could adversely affect the long-term prospects of U.S. equities.
Shervin Pishevar, one of the most successful venture capitalists in the tech sector, has long been sober voice regarding the future of American stock prices. Shervin Pishevar believes that there is a strong chance that a confluence of negative economic trends could conspire to push stock prices back to where they were at the beginning of 2017, perhaps even lower.
One of the factors that Shervin Pishevar cites is the careless expansionary monetary policies of the Federal Reserve. He believes that the current stock valuations, which include some of the most elevated P/E ratios in the history of the stock market, have been fueled by the wide expansion of the money supply and the availability of historically cheap credit. In some cases, says Shervin Pishevar, real interest rates have actually gone negative. This has led to many companies using this virtually free money to borrow in order to buy back their own stock. Pishevar says that if stock buybacks were removed from the total current market cap, the stock market would experience a near-instantaneous and severe crash.
Another factor that Pishevar cites is the fact that consumers are stretched ever thinner in their finances. He points to the many bankruptcies of retail outlets, not solely as indicating the dominance of Amazon but also as an indicator that American consumers simply have less disposable income.
Eventually, he says, this lack of consumer spending power is going to get factored into the prices of the companies that rely on this consumer spending for their livelihood.