Is the stock market going up because there are more buyers than sellers? No. There are a fixed number of shares in the marketplace. For every buyer of a share, there needs to be a seller of the asset. In fact, a transaction cannot occur without each participant – each buyer and each seller – playing a role in a trade.

So why is the U.S. stock market relentlessly powering ahead? Shareholding sellers are only willing to accommodate eager buyers at significantly higher prices.

In other words, the story line that buyers outnumber sellers erroneously claims that more people are getting into stocks. That’s not the case. Those who are selling a stock asset at this particular moment are in the proverbial driver’s seat. They are letting go of some of their holdings at all-time record highs to those who are willing to pay almost anything to chase year-end performance.

Why is this an important distinction? Primarily, some stock owners must believe that the “Trump Effect” is close to running its course. It follows that sellers who reduce equity exposure when buyer exuberance borders on irrationality may have more cash in their portfolios for future opportunity. Perhaps they will employ cash to acquire stocks at significantly lower prices from today’s irrationally exuberant folks who become tomorrow’s illogically pessimistic liquidators.

Who, then, is selling stock? Consider prominent prognosticator and media-dubbed bond king, Jeffrey Gundlach. He believed Trump would win the presidency when few others anticipated the result. He accurately anticipated a surge in stock prices as well as a spike in rates. Now, however, Mr. Gundlach feels the excitement is overdone. “The dollar is going to go down, yields have peaked and will move sideways, stocks have peaked as well and gold is going to go up in the short term.”  

Regardless whether the performance chasers have it right or whether the sellers of stock are accurately predicting a pullback, globally diversified investors may be feeling as though they did not receive an invitation to Trump’s party. Imagine having 60% in a global mix of stocks (one-half of which is dedicated to U.S. equities) and 40% in a global mix of bonds (one half of which is devoted to U.S. bonds). How do you think you would have done from the election up through December 5?

It may be difficult to conceptualize, but a globally balanced approach served up zero gains in the time period. Keep in mind, over the last 20 years, some of the premier money managers experienced phenomenal success with this precise mix of assets. Moreover, few mutual funds in existence have performed as well as Blackrock Global Allocation (MDLOX). Over the last two decades, this is a balanced fund whose performance has few equals.

Has diversification lost its value entirely? Or is it merely a function of what has been happening around the globe over the last five years?

Gavekal Capital offers a unique look at the market capitalization breakdown for developed stock markets in the Americas, Asia and Europe. (Note: The Americas is 93.2% U.S. and Asian developed markets are 95% Japan and Australia.) Since the financial crisis, both developed market Europe and developed market Asia have seen their portion of the world stock market pie diminish. In complete contrast, developed market Americas (primarily U.S.) now has market cap (58.4%) that rivals the year 2000.

If the dark blue line continues its upward trajectory, then the performance chasing stock buyers of December 2016 may have reason to be happy that they boarded the momentum train. On the flip side, if recent history provides any guidance, the year 2000 demonstrated how U.S. stocks had gotten too big for their britches. Indeed, 2000-2009 was a strong decade for foreign equities and a weak decade for domestic ones.

I am not suggesting that U.S. stocks are doomed or that they will experience another lost decade. On the other hand, the stock valuation patterns from 2011-2016 are eerily reminiscent of what transpired (1994-1999) prior to the bursting of the tech bubble. The S&P 500’s Forward P/E has rocketed more than 70% since the eurozone crisis in September of 2011. The only time that Forward P/Es expanded more? The dot-com disaster (115%) and the period leading into Black Monday in 1987 (112%).

Neither the price-to-earnings (P/E) expansion in the chart above nor the absolute valuation levels are sustainable. On the latter, the median stock for the S&P 500 has NEVER been more overvalued on price-to-earnings growth (PEG) nor Enterprise Value-to Sales. Not in 1929. Not in 2000. Not in 2008.

Is it possible that none of this valuation stuff matters anymore? Sure, anything is possible. This time may very well be different.

On the flip side, it rarely makes financial sense to pay more than 2x annual revenue for an investment firm or pony up more than 1.25x annual billings for an accounting practice. It follows that you may want to be judicious about your overall exposure to corporate stock shares in an elevated dollar environment. Not only might corporations struggle to grow their top and bottom lines at a fast enough clip to validate paying exorbitant premiums for share ownership, but sellers here in December may be longer-term winners with a “sell high, buy low” strategy.