Is This Bull Market Over?
by Alexander Green, Investment U Chief Investment Strategist
Monday, April 16, 2012: Issue #1752
Lately the market has been wilting like last week’s roses, drooping in one session after another. Is the bull finally headed out to pasture?
The market had a strong first quarter this year. The S&P 500 rallied 12% on the heels of an 11% gain in the fourth quarter of 2010. In fact, it has more than doubled from its bottom on March 9, 2009.
But lately the market has been wilting like last week’s roses, drooping in one session after another. Is the bull finally headed out to pasture?
Don’t count on it. While no one can forecast the short-term zigs and zags in the market, there are three good reasons to believe there’s still life in this bull:
- History shows that pullbacks don’t generally follow a strong first quarter. The S&P 500 has soared 10% or more in the first quarter eight times since 1945. According to Standard & Poor’s, the market rose three-quarters of the time in the following quarter. And the one other time the market rose 10% or more in both the fourth and first quarters, stocks gained 5% the next quarter.
- First quarter profits are likely to be another record. Don’t forget that corporate profits have hit all-time records in each of the last eight quarters. And – while the reporting season is just getting under way – this time isn’t likely to be any different. Yes, the gains will be more modest this time thanks in part to higher oil prices and tougher year-ago comparisons, but we’ll almost certainly see more all-time record profits for the first quarter and a few big surprises could send stocks higher again.
- Investors are still afraid. That’s actually a good thing. As John Templeton declared, “Bull markets are born on pessimism, grow on skepticism, peak on optimism and die on euphoria.” You talk to anyone lately who’s euphoric about the economy and the stock market? Me neither. And people aren’t investing their money that way, either. According to The Investment Company Institute, investors yanked $1.2 billion out of stock funds in February after taking out $423 million in January. History shows a near perfect correlation between equity fund redemptions and stock market performance. It’s when investors starting throwing cash at the market that you need to worry. And we’re a long way from that.
When you look at the fundamentals, it’s surprising just how negative the average investor is. After all, we’re enjoying low interest rates, low inflation, expanding markets overseas (especially in the developing world) and all-time record corporate profits.
What’s keeping most investors at bay, of course, is volatility. And not just lately. Investors have been clobbered by two massive bear markets in 12 years. The 2000 to 2003 bear market took stocks down 49%. It was the worst market since the Great Depression – until the 2007-2009 bear market showed up. That ripped 57% from the leading market index.
Last year, the S&P 500 fell 3% or more six times, and on one gut-wrenching day in August, 6.7%. That made microscopic money market yields look attractive.
Of course, volatility is the price of admission in the stock market. If equity accounts rose as smoothly as bank accounts, everyone would be fully invested. But they’re not. Not even close.
Paradoxically, that’s another reason stocks actually look pretty good here.
Good Investing,
Alexander Green
Any investment contains risk. Please see our disclaimer.
9 Responses to “Is This Bull Market Over?”
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I am a long term member of Oxford Club and a Chairman’s Circle member for 6 or 7 years.
I am a Regional Sales Manager for Water Treatment Systems and other Environmental projects. We have done a lot of infrastructure work over the past years.
Though it appears in general the economy seems to be doing better, I am getting the same signals in my sales calls and as I do trade shows in the Western U.S. as I did in early 2008. I call on Engineering Firms, Contractors and End Users. Much of the infrastructure development over the past 3-4 years has been done with government grants. These are gone and though there is a lot of money to lend at low interest rates, few are doing this. EPA is granting extensions again so projects are being delayed. Engineering firms are asking me if I know of any new projects since they don’t have any or only have a few. This is the same sign I saw in early 2008 before the market collapsed.
I’m not saying it will happen again but the signs are in place and if engineers don’t have projects today, contractors and suppliers won’t have them tomorrow. I hope this is an isolated case directly related to our industry and not more widespread.
I am almost fully invested now but tightening my stops in hopes of protecting my principal as best I can.
Thanks to Oxford Club and Investment U writers, I feel more prepared than in the past to capitalize on ups and downs in the market.
Thanks
Doug Craver
Chairman’s Circle Member
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With all due respect, I believe that anybody that truly believes inflation is low does not go shopping for food, gasoline, or have to pay for electricity, heat and air conditioning, shoes, clothing, or is an economic idiot.
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It seems to me, there are those who report on the economy and give “investment advise”, but their read job is to mislead, misinform and misdirect the (retail) investors. Anyone who PRETENDS that the government figures on inflation is the real inflation level, is there to deceive the (retail) Investors and to build false hope in an economic system that is in decline.
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As one of our sports announcers would say, “Are you kidding me”?
I am a “sector” invester and try to follow the market closely.
Let me give you some “numbers” that concerned me:
TECHNOLOGY – YTD as of April 13 +19.60%
Last 6 weeks +1.67%
Last 4 weeks -1.31%
AUTOMOTIVE – YTD as of April 13 +17.49%
Last 6 weeks -4.51%
Last 4 weeks -5.74%
BANKING – YTD as of April 13 +14.28%
Last 6 weeks +2.64%
Last 4 weeks -4.35%
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good article could,nt have said it better myself
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Whether I’ve made money or not in 2012, tell me why I shouldn’t get out of the market by the end of May or by June?
Unless you’re a trader or speculator, the odds are great you will lose significant money over the summer.
It will usually come back, but why go through all that gut-wrenching volatility?
Why not leave in May-June, and come back & grab bargains in August-October?
This is especially true if your investments are in IRA’s where there is no tax consequence for selling now and buying later.
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Maybe you might consider the global ‘seemingly impossible to solve debt overhang’ and ‘race to the bottom’ currency devaluation. Not everyone may fully comprehend the situation but many ‘feel it in their bones’. I suspect this trumps all of the reasons mentioned in your piece. The pain of the outcome is rather unknown.
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Same ideas.
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“The S&P 500 has soared 10% or more in the first quarter eight times since 1945.”
does this mean the market will be up an annualized 40% this year?
“First quarter profits are likely to be another record.”
is this why tax revenues are historically so low?
“Investors are still afraid.”
is this why insider selling to buying is 20 to 1?
“…look at the fundamentals…we’re enjoying low interest rates, low inflation, expanding markets overseas (especially in the developing world) and all-time record corporate profits.”
is low inflation why the cost of gas in yen, yuan, etc. is under $3.00 per gallon? and if overseas markets are expanding, why is the baltic dry index where it is? finally, are the all-time record corporate profits due to increased revenues, and, if so, why are tax revenues at a low, or are they rather due to cost cutting on employee costs?
kindly respond. your colleague, mr. lichtenfeld, did not respond to my previous question about the baltic dry index.
thank you.
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