Not quite four years ago — on March 9, 2009 — the stock market bottomed out. The Dow Jones Industrial average hit 6507.04, the S&P 500 hit 676.53, and the NASDAQ hit 1268.64. At that point, all three indices had fallen by more than 50% since their pre-bear peaks in October 2007.
And yet, here we are. The Dow has just set an all-time high (though some have rightly pointed out that this ignores the effects of inflation) and the S&P 500 is knocking on the door.
The NASDAQ, of course, is still well off it’s all-time, dot com high. Believe it or not, it closed March 10, 2000 at 5048.62 — a full 56% higher than where things stand today.
But still, things are looking up. Which begs the question… How long can it last?
Well, the latest issue of Money Magazine had a three page spread highlighting the reasons that the bull may keep running. This, in itself, may be a sign that things have run their course. While we still haven’t (imho) reached euphoria, the masses are starting to buy into the idea that the market’s recovery is real.
Money’s arguments in favor of a continued bull market focused on a number of factors, including:
- Stock market valuations. At the time the article was written (late January) the average P/E ratio was around 15 compared to a historical average of 16. The end of the late 80s and the 2002-2007 bull markets topped out around 17, whereas the P/E reach 29 at the end of the 1990s bull market. Note that, after the recent runup, we’re currently at an average P/E of 17…
- Factory productivity. Industrial production has been growing since the end of the recession in 2009, but we still haven’t reached pre-crisis levels. Thus, companies can continue to ramp up without making major investments.
- Consumer credit. A byproduct of the recession and the attendant low rates has been that consumer debt obligations are the lowest they’ve been since the early 1990s.
- Interest rate considerations. The Fed has gone on record as stating that they’ll keep interest rates low at least until unemployment falls below 6.5% (assuming inflation remains tame).
- Rallies are still broad. As a bull market matures and nears it’s end, gains are increasingly driven by fewer and fewer stocks. Notably, yesterday’s climb to record levels saw all but three companies in the Dow post gains.
Of course, whether the bull will continue to run is anybody’s guess. Perhaps we’ll continue on to even greater heights. Or maybe, as many technical analysts fear, we’ve reached a dreaded triple top and the bottom is about to drop out.
Either way, we’re sticking to our plan.
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