After a soul-crushing first half of 2022, both ASX shares and US stocks have really picked up in the past few weeks.
The S&P/ASX 200 Index (ASX: XJO) has now gained almost 10% since its 20 June trough. The S&P 500 Index (SP: .INX) has climbed 14.8% over a similar period.
And amazingly, the Nasdaq Composite (NASDAQ: .IXIC) has now rocketed more than 20% since mid-June.
That's a bull market, believe it or not.
Thursday morning was something of a watershed moment as the latest figures pushed the yearly US inflation percentage downwards.
That aroused stock investors no end, pushing the NASDAQ up 2.9% for the day. The ASX 200 followed with a 1.1% climb.
This is all very exciting. Some people might even dare to think ASX shares have now passed the bottom.
However, multiple experts are warning against complacency.
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'Too early to say we're out of the woods'
While DeVere Group chief executive Nigel Green welcomed the retreat of US inflation, he cautioned that investors needed to understand the full picture before partying like it's 1999.
"It is still too early to say we're out of the woods with inflation and the impact it could have on the Fed's decision-making," he said.
"Some of the drivers of the 40-year high inflation rate we've been seeing are subsiding — commodity prices are coming down, and supply chain issues are decreasing. But we still have rising wages, and this will continue to drive core inflation."
MFS Investment Management portfolio manager Rob Almeida warned investors that none of the behaviours typically seen when the market bottoms have yet to materialise.
"Historically, markets have tended to bottom when investors give up — stop caring, vow never to invest again and no longer ask 'Is this the bottom?'" he said.
"I've lived through that twice and I don't think we're there yet. But when investors stop asking whether we are, we will be."
Green cautioned investors against getting caught up in the excitement and buying anything and everything.
"You must buy wisely in this volatile environment," he said.
"Investors' response should be to avoid complacency and a 'buy everything' mindset and stick to basic investment fundamentals."
ASX shares still under stress
Local experts further warned that ASX shares will be under pressure for the foreseeable future.
It seems the steep rise in interest rates over the past three months is starting to bite. Consumer advocacy group Choice found this week that 90% of Australians have seen their expenses balloon in the past year.
"Almost all households are feeling the pressure of price rises," said Choice editor Marg Rafferty.
"Cost of living pressures continue to be a major issue for Australians with our latest Consumer Pulse data showing 23% of households are struggling to get by, which is up from 18% in June last year."
Furthermore, Nucleus Wealth chief investment officer Damien Klassen reckons ASX shares are still overvalued.
On face value, the ASX currently trades at a price-to-earnings (P/E) ratio of about 14.7 times, which is significantly cheaper than the rest of the world at 16.1 times.
But the trouble is that the dominant mining and banking shares skew that measurement with their slim PE ratios.
"For resources, it is because it has volatile revenues and even more volatile profits. For banks, the extreme leverage used increases the risk," Klassen said on a Nucleus blog post.
"If you strip these sectors out and compare Australia excluding banks and resources, it no longer looks cheap. Actually, it's well above the 90th percentile, close to as expensive relative to the world as it has ever been."
