High Valuations Are Good, Actually By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - The seasonality bottom has arrived…
- Why you should never scoff at an “expensive” market…
- This volatility is not about earnings…
- Always pay attention to repeat Big Money buy signals…
Who could’ve imagined this would happen? A sell-off beginning in mid-February and lasting through mid-March was completely unthinkable, right? We’re in the most bullish six months of the year! Stocks can’t sell off now! They can. They did. Not only that… They normally do. Dedicated readers will remember what we wrote you on Feb. 24: Since inception, SPY has started to fall right around now and lasting through mid-March. Take a look at this chart of SPY seasonality, part of our Trade Cycles software: 
From the peak on Feb. 15 through March 12, the S&P 500 has fallen an average of -0.73% on 15 out of 32 years. Now, that’s a bit of a toss-up. But with the way the chart looks above and how chaotic the year so far has been, I’m gonna lean bearish here. | Recommended Link | | | | This message may catch you off guard. For more than four decades, I been known as one of the world’s most bullish investors. But today I need to share some dark news with you… It concerns a financial event that’s about to wreak havoc on the stock market… and catch a lot of people off guard. I’ve put together this short video to reveal all the details. |  | | Now it’s mid-March. And while SPY fell quite a bit more than -0.73%, the seasonal pattern is almost complete. So it’s time to get bullish again. Let’s look at a new seasonality chart, this time on the Nasdaq 100 using the Invesco QQQ ETF (QQQ), which got beat up over the past month. But we’ll look at it in two ways. First with a small, but important dataset – post-election years. In the six post-election years since its inception, QQQ has fallen from Feb. 12 to March 4 in five of them, with an average fall of -6.2%. That looks quite a bit similar to what we saw here in the post-election year of 2025: 
Here’s how the returns stack up by year. Funny enough, the only time QQQ was positive during this period was the last time Donald Trump was president: 
But this isn’t just a post-election-year thing. We see this in the long-run data too. In all years since its inception, QQQ has on average taken a bath to start the year, peaking around the start of January and falling all the way into March 14. (That will be this Friday.) From there, though, tech stocks put on quite a show. While choppy, QQQ has on average gained nearly 8% from March 14 through July 15: 
For the past 20 years, QQQ has rarely deviated from this trend: 
In short: It’s time to stop leaning bearish. Seasonality shows that stocks are set to bottom soon. History will look kindly on those who make smart buys this week. “But stocks are still too expensive”… This is a common refrain from the permabears. They say stocks are so expensive, the only logical direction for the market is down, because they think the only way a price-to-earnings (P/E) ratio can come back to “normal” is by changing the P. Let me tell you something about valuations that will blow your mind. Are you ready? You want stocks to be expensive. Why? Because when stocks are expensive, it means investors have high expectations for earnings growth (the E). Then if the E catches up, that can also make the ratio go down, contrary to popular belief. And they don’t have these expectations simply because they’re optimistic people. They have them because the data tells them they should be optimistic. I submit for the public record two charts. The orange line below is the 200-day moving average (200DMA) of the S&P 500 P/E ratio going back 27 years: 
Source: GuruFocus By looking at this moving average of the S&P 500 P/E, we begin to understand what’s happening. - Stock valuations are trending higher on a longish-term timeframe. Since about 2011, they’ve been generally getting more and more expensive.
- There was an anomaly in 2018/2019 where stocks were volatile and got cheaper – not just because prices crashed, but also because earnings continued to grow faster than prices.
- Then in 2021, things got a little out of hand. The P/E itself got really far away from the 200DMA. That was mostly a matter of P going higher relative to E. (But as we’ll see shortly, investors had good reason to bid up stocks that high.)
- But in 2000, we had seen E going lower relative to P, because investors were selling S&P 500 stocks while earnings were utterly collapsing. That’s why you saw stocks get unusually expensive in 2000 and 2008, during recessions and bear markets.
- And while the P/E itself is relatively high today compared to the last 10 years or so, it’s not that far from its 200DMA. When you see stock valuations extend from their long-term average, that’s when you have a problem.
Now, we understand P/E: It grows either when prices grow faster than earnings, or earnings fall faster than prices. The first one is good, and the second is bad. So, what are earnings doing? Well, they’re growing. They’re higher than they were in 2021... and 2008... and 2001, when valuations were all higher than they are now. Not only that, profit margins are expanding too. What we see in this chart, courtesy of DQYDJ, is exactly what we want to see. Profit margins have nearly doubled so far this century. Companies are keeping more profit than at any time other than 2021, when the average profit margin was over 12.5%: 
When that is true, and you also have the cost-cutting magic of AI at your side… The only truly logical conclusion is that earnings will expand and stocks will grow into their valuations. The state of corporate America is darn healthy, from where I stand. All these companies are making great profits and earnings, and their valuations are not accelerating at an abnormal rate. They’re expensive, but not for no reason. They’ve earned the right. All the volatility of the past month has come down to the idea that this will be disrupted by new trade policy. It might. But even if it does, it’s just not rational to sell stocks ahead of the actual receipt of that data so we know how much. Valuations are only so high as they deserve to be today – they’re not unusually out of whack. So at the very least, don’t let that be a reason not to be invested. If you’ve ever heard the saying “buy nice or buy twice,” that’s just as true for stocks as it is for HVAC units and coffee makers. Don’t fear a pricy market – history shows we should only do that when it’s getting too pricy, too fast. It’s always fun to buy great stocks in bull markets… We’re still in a bull market. You know: the times when stocks generally go up... with some pit stops along the way. What should we do in bull markets? Buy great, quality stocks with strong upside momentum and buying pressure – so strong, it can only come from the deepest-pocketed firms on Wall Street. Our growth investing specialist, Jason Bodner, knows all about this crowd. He made deals for them at Cantor Fitzgerald in significant size – millions and billions of dollars. He knows what the Big Money wants and when they want it. As is tradition here in TradeSmith Daily, let’s take a look at what the Big Money wanted last week in the Quantum Edge Hotlist… This list contains what Jason calls Power Factor stocks. He defines Power Factor stocks as those with two key characteristics: - Fundamental outperformance – stocks with the strongest earnings, revenue, and profit margin growth.
- Market-beating momentum – the stocks moving up faster than any other, thanks to institutional buying.
Using advanced quantitative metrics, Jason turns these two factors into numbers – the higher, the better. Then they form the Quantum Score, which ranks the stocks that pass Jason’s first strict filter. Each week, Jason shares the top- and bottom-ranked Power Factor stocks with his Quantum Edge Pro subscribers. The latest list is in, and it highlights some familiar names along with fresh standouts: 
Palantir Technologies (PLTR) and Vita Coco (COCO) reclaim the top spots, this week tied for #1 with impressive Quantum Scores of 87.9. These repeat entries continue to show strong institutional backing, reinforcing their position as top picks. Joining them are familiar faces like Dynatrace (DT), Robinhood Markets (HOOD), and Doximity (DOCS), the latter two of which appeared last week as well. Futu Holdings (FUTU) and LPL Financial (LPLA) also make repeat appearances, further proving their staying power in this market. One newcomer to the list is Chefs’ Warehouse (CHEF), making a strong debut at #10. On the flip side, Ionis Pharmaceuticals (IONS), Lineage (LINE), and Seabridge Gold (SA) continue to struggle, ranking at the bottom with weak fundamentals and technicals. Structure Therapeutics (GPCR) and Fortrea Holdings (FTRE) remain on the “not” list, with poor momentum signaling further weakness ahead. The Big Money doesn’t lie. Repeat appearances on this list, especially with stocks in a slide, just show that institutions are loading up on these quality growth names amid the volatility. Don’t miss out on them. As for the model-portfolio picks, Jason isn’t much of an active trader in Quantum Edge Pro – so when there’s an alert, it’s extra worthy of consideration. And this week Jason added a new buy for one simple reason: “Sell-offs in the highest-quality stocks with a history of Big Money inflows are some of our best buying opportunities – opportunities that can give us an even higher probability of bigger profits.” Nice to be in agreement with the guy who beat the S&P 500 by 7-to-1 since 1990, as our independent backtest here at TradeSmith showed. If you haven’t “met” Jason yet, you can hear all about this from him in this free presentation about the Quantum Edge system. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily P.S. Is Nvidia (NVDA) a buy ahead of its “Q Day” conference this month? No. Or, more accurately: If you buy one stock for this event, make it the one Louis Navellier’s research turned up instead. If you’re not familiar with Nvidia’s Q Day, we’re talking about an anticipated breakthrough technology that could revolutionize industries worth over $46 trillion. So, a week before CEO Jensen Huang takes the stage about this, Louis is holding a briefing this Thursday, March 13, to get you ahead of the news. However you feel about Nvidia and its cohort at this point, there’s no denying their market-moving, economy-driving impact. And according to Louis, the media is missing out on the most important part of this… The story of how one tiny small-cap company is positioned to be crucial to Nvidia’s big reveal, thanks to its technology protected by 102 patents. Sign up here to save your seat at Thursday’s briefing and hear Louis out on this... before Q Day shakes everything up. | 
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