18 months ago, I wrote about “3 bull market killers still not being present” in this market, but now the landscape is changing ever so slowly. I still get questions from clients and others regarding the market being high. I say, consider these factors:
- The market’s nominal price has made over 50 new all-time highs since my last writing of this blog.
- 20 years from now, with an average annual gain of 9% per year, the equity market could be looking at a DOW JONES average in the 100,000 range – while 20 years ago, the Dow Jones was hovering around 4,000 (this is a hypothetical example for illustration purposes only. Actual results will vary).
- 12 of the last 20 years the Dow did not make a significant new high, but still averaged almost 10% a year.
Those numbers don’t tell the whole story. So when I’m asked, “Do we still have time before this bull runs out of gas?” I look at the gauge and start getting uncomfortable because of three markers.
3 Bull Market Markers to Watch
The three things that tend to kill a bull market are inflation, interest rates, and valuations. Only one of these is present now. First look at inflation, where we are tracking at one of the lowest rates in history -- less than 2% annually. Then check out interest rates, which are still at the lowest levels in history. Consider that the 10-year treasury at just over 2%. And finally, look at equity valuations -- these measures are just over the historical averages of 15 times earnings.
History as our guide would tell us that until all three of the bull market killers are present this bull is still alive, but aging.
Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.
Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.
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