With a return of 255 percent since March, 2009, the stock markets in US are experiencing a 98 month bull trend. This pace of market is only paralleled by the 114 month bull market from 1990 to 2000. However, these bull periods usually end with a correction. The 1999-2000 bull surge of 114 month was followed by a 49 percent correction over a period of 2 and half years. Although, after the correction, market went into another bull streak for a continuous 60 months and then corrected itself by 57 percent during the span of next 17 months.
The length of the current bull market is more concerning when the devil in details is aknowledged. For example, Shiller S&P 500 cyclical-adjusted price-to-earnings ratio (CAPE) which is based on average inflation-adjusted earnings from the previous 10 years is at 29x versus its average of 17x. But other economic indicators continue to be solid; with unemployment low, interest rates down and a strong housing market do not hint at any imminent recession. But the historical valuation of risk insinuates at short term correction which could move the market down by 10-15%.
On a contrary opinion, Nobel Laureate and Sterling Professor of Economics at Yale University who helped develop the widely followed S&P/Case-Shiller Home Price Indices, is of opinion that market will move up by 50 percent from here. He mentioned that in retrospect, moved up by 50 percent when it was in a similar position during the 2000s, so at the moment investing in stock market is the best bet considering the alternatives and their performance over the course of last few years.
Further, even though current CAPE ratio may be at its historically high level, the economist doesn’t see a market in decline for the coming few years. He is of view that there is a strong possibility that the stock markets and the housing markets will continue to move up in the coming few years.
Furthermore, Investment Strategist, Jeffrey Saut based on the results of his forecast models is of opinion that the market has a potential to grow in coming years but there is a problem. The problem is of underinvestment by the investors, people are overwhelmingly underinvested. Numbers also anticipate a healthy market movement in the coming years. He is of view that with 9 out of 11 sectors in S&P positive, the market is on its path towards growth. He was of opinion that the market rally was driven by the Trump’s policies, and if he is able to get through his tax cuts and reforms legislation will also translate positively into the market. Warning investors of the geo-politic events that could stir the otherwise calm market should be keenly observed; events like North Korean missile tests have a potential to turn into a full scale macro event changing the landscape across the world.
However, investors need to be aware that, at these multiples and the age of the current bull market, the next likely moves of 10 percent to 20 percent in stocks maybe lower, not higher. The problem, however, is that there is not sure shot to time the fall.