It’s been a terrific six-year bull run. So, are we at the tail end of a raging bull market that’s about to be gored? Or does our slow-growth-not-no-growth economy drive prices even higher? It depends on your perspective.
The catalyst for these musings is the recent run in the Nasdaq Composite, which crossed 5000 for the first time since March 2000 — at the peak of the tech bubble — on Mar. 2. For some investors, this signals we are back in bubble territory. In my book, though, 5000 is just a BRN, or “big, round number.” Forget all the posturing around it.
Today’s Nasdaq, unlike in 2000, is made up of companies that are hardly selling at astronomical multiples of earnings, as they did 15 years ago, and that actually pay dividends, something they didn’t do those many years ago. Note that I said they have earnings, which by itself distinguishes them from the highflyers of the dot-com age.
But a better way to look at the recent surge in stock prices is to compare returns over the six years since the market bottomed on Mar. 9, 2009, to the period starting at the market’s peak on Oct. 9, 2007, prior to the financial crisis and massive bear market of 2008 and 2009.
If that sounds bubbly, well it is. Foreign stocks look less bubbly.
I’m not surprised if you’re feeling pushed and pulled by the myriad commentaries about market peaks that permeate the media. Many commentators already have a view, bullish or bearish, and then pick the data point that supports their stances.
I would say it’s a fair guess that the next six years won’t see returns as strong as the last six — in fact, it’s probable there will be a bear market sometime during the next six years. But just because we’ve had a good run doesn’t mean we are poised for a crash.
Whatever the crystal-ball gazers tell us, you won’t see me changing my stripes. I’m not about to become a market-timer, jumping in and out of stocks and cash. I’ll continue to partner with the best managers at Vanguard.
While I’ll occasionally shift the portfolio toward areas where I see relative value, I know that the best way to build wealth is to spend time in the markets, not time the markets.
With the first quarter now in the rearview mirror, are there any trends or insights that we can take away? The clearest one to me is the value of diversification, which is something I’ve harped on again and again and again over the years.
Looking ahead, I’m expecting a fairly lousy earnings-reporting season. The reason: Given the fact that the S&P 500 is, by definition, top-heavy with the largest companies in the market and that many of these companies are multinationals, the dollar’s strength will have impinged on their abilities to generate profit growth.
In addition, many of those same top-dog multinationals are oil companies, and you know what’s happened to the price of oil. That isn’t going to help earnings, either. Add in a touch of winter weather, which from all reports seemed to hit the economy particularly hard in February, and you’ve got all the makings for an excuse-laden reporting season.
Instead of focusing on results over the months just past, corporate managers’ projections will provide better clues about what lies ahead.
Editor Dan Wiener and Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, an award-winning monthly advisory letter that keeps subscribers abreast of recent developments at Vanguard, and provides long-term guidance for investing in the Vanguard fund family.
