In the words of legendary investment guru Sir John Templeton: "Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."
It's safe to say that the bloom is off the Donald Trump rose. The Dow Jones Industrial Average fell on Monday for an eighth straight session, as investors fretted that the humiliating demise of "Trumpcare" could impede the rest of his pro-business agenda. The Dow's eighth straight decline marked its longest such streak in nearly six years.
With stocks climbing to record highs after Trump's surprising election, investors are concerned that his promises of tax reductions and greater infrastructure spending will meet the same fate as his bumbling efforts to repeal and replace Obamacare.
Investors are fickle and they were counting on President Trump to be a strong negotiator. Now that Trump has suffered an ugly setback on his first legislative initiative, his efficacy is in question. The growing smell of disarray around this White House is starting to infect Wall Street.
A red flag that the market is heading for a correction (or perhaps already in one) is that declining issues on Monday outnumbered advancing ones on the NYSE by a 1-to-1 ratio.
The NYSE advance decline line is a good measure of the market's general direction as well as the health of the market's liquidity. And market "breadth" is not comforting.
Stocks remain overvalued and due for a fall. The forward 12-month price-to-earnings ratio for the S&P 500 is 17.9, compared to the 10-year average of 14.4. Fact is, this overvalued equity rally is based on expectations that corporate profits will climb faster than gross domestic product.