an tSionna {05.04.15}

The US stock market as represented here by the S&P 500's ETF SPY has been in rally mode for the better part of three years.  The period has been defined by a more or less steadily advancing market and short term corrections, none of which have represented more than a 10% decline.  {Chart is from FINVIZ.com.}

The rally in 2015 seems to have lessened with the index up less than 3%.  One of the reason is valuations which are at the higher end of their normal trading range thanks to this long term rally.  Warren Buffet was on CNBC this morning and asked about the market.  He seems to have said that where stocks go will depend on what direction interest rates take.  Here's CNBC's synopsis of what he said:

"Billionaire Warren Buffett said Monday the stock market would be viewed as "cheap" now if interest rates continued to remain low. 

"If these interest rates were to continue for 10 years, stocks would be extremely cheap now," the chairman and CEO of Berkshire Hathaway said Monday on CNBC's "Squawk Box," two days after Berkshire's annual shareholder meeting. 

If rates normalize, stocks would be on the high side on a valuation basis, he said."

It's also interesting what he said about bonds in relation to stocks,  Buffet seems to be in the growing bond bandwagon that bonds are highly overvalued.

"Stocks are cheaper than bonds, which are "very overvalued," he said. "If I had an easy way, and a nonrisk way, of shorting a lot of 20-year or 30-year bonds, I would do it. But that's not my game. It can't be done in the quantity that would make sense for us."

It's worth noting that the consensus on bonds has been around for awhile but seems to have picked up stream lately.  However, I'd note again that I think it's going to be hard for the Fed to raise interest rates beyond some token amount given what's going on in the world, unless economic growth picks up more than expected.   If markets will do what they need to do to prove the most amount of people wrong, then in this regard I think the direction of the most pain in bonds would be for them to do nothing.

Link:  CNBC:  Warren Buffet:THIS is the Key to Valuing Stocks.

*Long ETFs related to the S&P 500 in both client and personal accounts although positions can change at any time without notice.