We’re in the midst of a new “secular” bull market for stocks. Several Wall Street gurus say it’s so — that 2009 was like 1982, and we’re in for years and years of much higher share prices.
You can read the arguments here, neatly summarized by veteran financial journalist Michael Santoli.
I certainly hope these folks are right, because it’s a lot easier to make money with a powerful market uptrend behind you. However, you can count me in the skeptical camp — for now, anyway.
Santoli touches on my first concern at the end of his article. Stock valuations never got anywhere near as low at the 2009 bottom as they did at, say, the 1982 or 1949 secular lows.
In addition, economic growth has been much weaker since 2009 than in the years following most of the important long-term market lows of the past. Santoli rewrites a little history here. Contrary to his recollection, “real” (inflation-adjusted) GDP grew at a torrid 5% annual compound rate during the first four years of the Reagan bull market.
During the first four years of the Obama bull, the nation’s real output of goods and services has grown a measly 1.1% annually. That’s a mighty sad record, given the enormous fiscal and monetary stimulus Washington has injected throughout the entire period.
Even more troubling, from my point of view, and completely unmentioned by Santoli: This great secular bull now supposedly underway has acted rather stingy toward stock markets outside the United States.
In dollar terms, the MSCI All-Country Index ex-US, which takes in all global equity markets other than our own, still stands well below its peak for the current cycle, set more than two years ago (in May 2011). Secular bull markets of the past have almost always swept along the vast majority of individual bourses around the world.
In short, I think the jury remains out on the long-term bull case. Until economic growth improves at home, and stock markets improve abroad, I recommend you take a cautious approach. Buy only on significant dips. Thin your positions after substantial run-ups. And yes, maintain a balanced mix of stocks and bonds.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
