Has the Bull Market Run its Course?
With all the recent market volatility, it’s natural to wonder if the bull market that we’ve been enjoying has come to an end. CNN/Money recently looked at this exact issue in light of five signs of an impending bear market.
Before a bear: Oil prices often surge
Happened yet? Yes
It happened in the early- to mid-1970s and again the early 1990s. And guess what? It’s happening now.
Before a bear: Treasury yields often run up
Happened yet? Not really
It happened in the mid-1970, early- and late-1980s, early 1990s, and also in 2000. So far history has’t repeated itself.
Before a bear: The number of rising stocks starts to shrink
Happened yet? Has it ever!
If more stocks on the NYSE are hitting 52-week lows than are hitting 52-week highs, that’s a bad sign. As of mid-July, twice as many stocks were hitting highs as were hitting lows. But by the end of July, the situation had reversed itself and new lows vastly outnumbered new highs.
Before a bear: Consumer spending sometimes slows
Happened yet? Starting
Retail sales fell nearly 1% in June, and if housing prices continue to drop, consumer is expected to drop as well.
Before a bear: Corporate earnings growth often slows
Happened yet? Just wait for the ‘07 numbers
During the bull market leading up to the 2000 nosedive, earnings of the average S&P 500 company grew more than 12%/year. But when companies started warning of slower profit growth, the market started to slide. Fast forward to the present. From 2003 to 2006, earning rose more than 17% on average. However, the consensus estimate for 2007 is that earnings growth will be less than half that, at 7%.
So where does this leave us? It’s hard to say, but I’m not particularly concerned. We’re in this for the long haul, so even if we are headed for a correction (actually, we’re almost there) or a full-out bear market, we’re planning on staying the course.
One thing to keep in mind is that stocks are much more reasonably priced than they were in 2000, when the average S&P 500 company had a P/E ratio in the neighborhood of 30. In contrast, the average P/E ratio dipped this past week to 15.8, which is the lowest level since January of 1991. Given this, it’s hard to argue that stocks are wildly overpriced.
Photo Credit: tornatore
Published on August 20th, 2007 - 7 Comments
Filed under: Saving & Investing
email this article
- add to tip'd - digg this - stumble it - save to del.icio.us
Related articles...
» Money Poll #23: Super Bowl Prediction» Super Bowl (and Stock Market) Prediction Poll Results
» Weekly Roundup - Christmas Tree Edition
» The Best of August 2007
» Is Warren Buffett Smoking Crack?
» Gambling vs. Investing: Casinos and the Stock Market
» Cashing in With the Vanguard Tax Exempt Money Market Fund
» Stock Market Freefall
Get via RSS
I would say it’s only a correction. Economic statistics are slowing down but are still good. Also, many companies are still making good profit and are on the line with the year end objectives. This is definitely the time to buy!
Comment by The Financial Blogger — Aug 20th 2007 @ 11:03 amCheers,
FB.
Actually, we haven’t quite made it to the level of “correction,” which is defined as a 10% decline. We did, however, come close last week.
I’d wait to make a decision until the Subprime market shakeup becomes a little less than a hot topic. It might just be that the market is shook up by the housing bubble starting to burst, not a full-blown bear market.
Comment by CreditWithdrawal — Aug 20th 2007 @ 11:20 amI think we are OK but I’m keeping my eye on consumer spending and unemployment. Both of those have the ability to really hurt the market in the condition it’s in.
Comment by Market Flavor — Aug 20th 2007 @ 6:18 pmI think the market is going to be okay. The fed will bail the subprime market out.
Comment by MoneyNing — Aug 21st 2007 @ 10:43 pmI don’t think this bump will be long lasting. Especially if the Fed continues to step in and help out financial institutions.
Speaking of financial institutions, does anybody else think there are a lot of banks whose stocks are getting unfairly hammered as a side effect of the subprime mess? I think this is a great time to load up on stock in banks that have a nice, solid track record of making it through a tough market.
Comment by Brian — Aug 22nd 2007 @ 12:35 amBrian: Probably most of them are unfairly hammered as you said but everyone is afraid any one of the financial institutions would be the next to blow up so it is naturally that everyone will lighten up on their positions. This makes the stock go way down as it did.
Unless you for some reason can be sure that the bank will absolutely be able to weather the storm, then there are risks in buying its stock even if the price right now seems low.
Comment by MoneyNing — Aug 22nd 2007 @ 6:14 pm