Has the Stock Market Gone Too Far, Too Fast?
I have received several calls and emails from friends and clients of late asking if, at a level of 15,000 on the Dow Jones Industrials, the stock market has gotten ahead of itself. Certainly, measured from the trough in March of 2009, equities generally, and the Dow specifically, have more than doubled in price. That’s pretty amazing. However, measured from the past market peak in 1999, the broad equity averages have returned a much more modest 3% per year, through the end of April (that is over 14 years!). This would hardly constitute stellar or outsized gains. More importantly, what we are witnessing are the clearly identified and recurring patterns of long-term equity average price moves (secular trends). Looking back, one can distinctly see these oscillating long-term trends. It would appear to us that the secular bear market that began in 1999 ended in March of 2009. The long secular bull market in stocks that began in 1981 ended in 1999. Looking back further at price charts, one can see this pattern repeating over and over again. Hence, simple pattern recognition would suggest that we are in a long-term secular bull market. Further, corporate profits have increased by more than the above noted 3% per year in stock returns, meaning that valuation is more compelling today than generally observed over the past 10 years or so.
We welcome any comments or questions.
Bob Bilkie, CFA