Where are we in the stock market cycle?

[Lsbcal]

Since we are unlikely to have reached a peak, I can say categorically it's going higher.

It's not baseball season yet so I'm afraid I cannot tell you all what inning this is.

 

[ejman]

I think the OP needs to find a good, consistent guru to follow. Someone with a proven record, Maybe a recent reincarnation of Joseph Granville, to date myself a bit. Maybe MPT Isn't Dead?

 

[Rickt]

Benjamin Graham said “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

Key to success in the market is to buy good companies on sale and hold them for a looong time. Markets will fluctuate always. In fact a correction of 10-20% can start and end at anytime without any warning. An investor must be prepared to ride out those corrections in order to make money in the market. Thus one must only invest funds that one will not need for the next 5+years (a normal business cycle).

This bull market that started in spring of 2009 is most likely in the 2nd half of its cycle (don't know where in the 2nd half). Bull market will eventually come to an end and be followed by a bear market (<20%+).

In the meantime enjoy the ride. Cheers!

 

[walkinwood]

With the Sp500 reaching all time highs again, I am amazed how it just keeps going up. It has not been a smooth ride. There have been been bumps in the road. Yet, not that I am asking for a correction or even worse, I can't help but wonder, where are we? I am not a market timer, but I do feel a sense of responsibility to myself if I can ,to understand if the markets are overvalued, fully valued , or if earnings are good, undervalued? Now I know there will be those who say it does not matter. To those who say that, you are correct, to a point. But to get more knowledge we have to ask why things are the way they are. So I am asking.

Read William Bernsteins The Four Pillars of Investment or Burton Malkiel's Random walk down wall street. You'll learn a lot about financial markets, and imho those books are required reading for anyone wanting to manage their own money.

 

[CaliforniaMan]

If you're not a market timer, what difference would it make even if someone could tell you? They can't, anyone who tells you they know for sure, is guessing in the end. We'd all be rich if it was predictable.
...

I know you were speaking hypothetically, but in real life if it was predictable we would all be exactly where we are. Everyone acting on the same information is exactly what makes markets unpredictable.

 

[38Chevy454]

My maybe logical view, S&P value is going to fluctuate, but will go higher over longer period. Length of that period can vary and subject to your risk and personal timeframe. Two reasons it will go higher:
1) Inflation, causes the value has to go higher to stay equal or greater than the losses due to inflation.
2) To some extent, as traditional pensions phase out, and people are responsible for their own savings it creates a large amount of money going in. Hence a sellers market where price goes up due to the demand.

Certainly if you could predict the roller coaster it could be beneficial. I am not that lucky, so will stick to my basic mutual funds and a longer term buy and hold philosophy.

 

[ShortInSeattle]

No one knows, of course. But here are my silly indicators:

You are getting "hot stock tips" from your hairdresser, and an idiot relative is suddenly a real estate investor: Market Peak

Jim Cramer is crying on cable TV, and American savings rates turn positive: Market Bottom

 

[UnrealizedPotential]

No one knows, of course. But here are my silly indicators:

You are getting "hot stock tips" from your hairdresser, and an idiot relative is suddenly a real estate investor: Market Peak

Jim Cramer is crying on cable TV, and American savings rates turn positive: Market Bottom

I do not get the sense that this is a market where the good times will roll on forever. I am still a little mindful of the 2008/2009 market crash. I do feel like there is no set pattern to market up and downs. The stock market reacts on news and events and earnings of companies, and all those are unpredictable. Still, it would be nice if there was a pattern, but that is what makes it interesting and challenging and rewarding because there does not seem to be one.

 

[SVHoper]

I couldn't improve upon Midpack's post #5 as an initial answer to your question.

However, I will add a couple of random points for your consideration:

* If you haven't already, you might like to read bogleheads.org especially the wiki and recommended reading list... this will generally be data to support inability of the vast majority to consistently time the market. Perma bears will always call crashes (but have a lot of false negatives and not call market re-entry timing) and vice versa.

* IMHO I am pretty confident (and probably in agreement with you) that returns for the S&P, small cap, REIT we have experienced since Mar 6 2009 will not continue at the same compound annual growth rate for the next 100, 50, 20 years.... 10, 5, 2, 1 I am less and less confident.

* If one is not a market timer... then any knowledge, understanding or belief about position in market cycles won't be actionable

* If one is worried about position in market cycle... I think Boglehead shorthand explanation for this might be that asset allocation risk is too high.

* Perhaps this might also be considered to be consistent with: if one is a little bit of a market timer... then perhaps they might nudge their asset allocation to less risk or less highly valued assets. At this time, it might be more cash, more short term bonds, less REIT To be consistent, after a crash perhaps one would nudge allocation to more stocks, more REIT, less bonds.
[I think I might dabble here a little]

* IMHO Asset allocation primarily works (not saying it is the only way that works) because it forces you to sell high and buy low.... eg. stock portfolio might have dropped 55% during 2008-9 but if you maintained your REIT and stock allocation you would have been recovered+ in a year or so. What doesn't consistently work is changing allocation % on a random feel/CNBC/seeking alpha post/technical indicator... as it might involve selling high but perhaps missing out on higher... then perhaps buying back in and perhaps crashing... and then perhaps not buying low.

 

[papadad111]

"Unless things change for the good... the VERY GOOD, and soon, and for a long time, the year 2000 retire has had it. 2000 will be listed under 1929, 1965, 1966, 1906. Maybe it doesn't invalidate the 4% rule but throws some huevo on its face. Is a sustained resurgence just around the corner? IAW most 4% rule expectations, yes. Will it be that grand? Probably not. So will it be different this time? Call me in 30 yrs"


I did not follow this above paragraph at all. What is he saying In simple terms.

 

[mrfeh]

I am not smart enough to pick my own stocks but I am smart enough to find fund managers with an eye on risk. IOW don't lose money.

If you aren't willing to see your assets decline in value, then you shouldn't own stocks.

 

[dallas27]

The S&P500 has been going up ever since it was established.

So has my cholesterol.

 

[audreyh1]

"Unless things change for the good... the VERY GOOD, and soon, and for a long time, the year 2000 retire has had it. 2000 will be listed under 1929, 1965, 1966, 1906. Maybe it doesn't invalidate the 4% rule but throws some huevo on its face. Is a sustained resurgence just around the corner? IAW most 4% rule expectations, yes. Will it be that grand? Probably not. So will it be different this time? Call me in 30 yrs"


I did not follow this above paragraph at all. What is he saying In simple terms.

He's just saying that a retiree starting retirement withdrawals at the beginning of 2000, using the classic 4% Trinity study rules, has had the poor sequence of returns that usually mean the portfolio does not survive. But he admits it might just be one of the "close" cases.

Except for me. I'm a late 1999 retiree living off investments only, and I use Jan 1 2000 as my benchmark and in terms of net worth we are up over 65% nominal and 25% real.

I think a well diversified portfolio probably did better than the typical S&P500 and whatever bond index is used in the models over that time period.

OK - I'm knocking on wood now because the above probably qualifies as a jinx.

 

[Chuckanut]

IIRC, there are number of people here who retired into a big down turn. They seem to have adjusted, rolled with the punches and have lived to fight another day.

 

[REWahoo]

IIRC, there are number of people here who retired into a big down turn. They seem to have adjusted, rolled with the punches and have lived to fight another day.

<hand goes up>

 

[bld999]

Anybody remember Elaine Gazarelli? She became notorious by calling the '87 swoon, but I can't remember the last time I heard the name.

Her firm has a Track Record page that makes them look like oracles.


Garzarelli.com

 

[audreyh1]

I am not smart enough to pick my own stocks but I am smart enough to find fund managers with an eye on risk. IOW don't lose money.

I don't think anyone is smart (prescient) enough to pick fund managers who won't lose money. Even the great fund managers occasionally lose money. But if you have a diversified portfolio, you rebalance occasionally, and funds that have gone down often recover.

I don't worry about fund managers trying to minimize risk. Stocks are risky. I manage my own risk through diversification across a broad range of asset classes.

 

[audreyh1]

IIRC, there are number of people here who retired into a big down turn. They seem to have adjusted, rolled with the punches and have lived to fight another day.

Yeah - also poster child W2R, 2008 retiree.

 

[UnrealizedPotential]

If you aren't willing to see your assets decline in value, then you shouldn't own stocks.

Don't lose money means do not take unnecessary risks. It does not mean do not take any risks. I went through the 2001/2002 down market and the 2008/2009 downturn. Neither time was I tempted to sale anything. I do not plan on doing so now. My viewpoint of don't lose money stems from the fact of me losing in the tech bubble of 2000. Not alot, but enough to make me realize there is risk and then there is risk one should not take. It also comes from me owning an emerging markets fund that I long ago sold and do not plan on owning again. You have to know what you own and why you own it. I do . Oftentimes you have to lose before you can learn to win. In 2000 the tech stock I owned went bankrupt. I did not have alot in it. In 2010 I traded my emerging markets fund into something I actually understand. Other than those two I have not traded or sold anything.

 

[HFWR]

The real question is when is Fed going to raise rates. I very much doubt that they have balls to raise rates...

I'm 92.4% certain that JY doesn't have any...

I'm "almost" certain the FED will raise rates. They need to get away from zero...

 

[Lsbcal]

For the OP I'm going to get serious for at least one post. I do have a market timing system and it is not signalling any kind of danger at this point. It has worked going back to the 1920's but only for major downturns that are preciptated by a combo of (1) slowly rolling off SP500 returns versus bonds, (2) yield curve at or near inversion, (3) weakly dependent on PE10 over very recent months. Most of the sell signals were in or followed by recessions. But note that recessions are generally recognized several months after they have started. And yes, I even have a buy back methodology. But to be honest, there hasn't been a sell signal since 2008 and I developed this starting in 2009. So yet to be tested in real time.

Then there are the very sharp decline markets that are tougher to identify. These include the Reagan era October 1987 decline and the Kennedy era 1962 sharp decline. Both those declines did not usher in recessions and were very worrisome but pretty quickly recovered from.

 

[Midpack]

I do not get the sense that this is a market where the good times will roll on forever.

That's a given - absolutely no one is saying anything like that. The S&P 500 has gone up relentlessly for the long term (mostly trading within a range of PE ratios, but not always), but there will always be corrections (some more severe than others), and no one has devised a system to reliably predict when.

I think your original question has been answered, but you may not agree?

Yet, not that I am asking for a correction or even worse, I can't help but wonder, where are we? I am not a market timer, but I do feel a sense of responsibility to myself if I can ,to understand if the markets are overvalued, fully valued , or if earnings are good, undervalued?

 

[UnrealizedPotential]

That's a given - absolutely no one is saying anything like that. The S&P 500 has gone up relentlessly for the long term (mostly trading within a range of PE ratios, but not always), but there will always be corrections (some more severe than others), and no one has devised a system to reliably predict when.

I think your original question has been answered, but you may not agree?

I think you have given about the best answer one can give. As best as I can tell we are where we are which is about in line with earnings going forward and I think the market prices reflect that. Beyond that , I have no opinion because I simply do not know.

 

[audreyh1]

Don't lose money means do not take unnecessary risks. It does not mean do not take any risks. I went through the 2001/2002 down market and the 2008/2009 downturn. Neither time was I tempted to sale anything. I do not plan on doing so now. My viewpoint of don't lose money stems from the fact of me losing in the tech bubble of 2000. Not alot, but enough to make me realize there is risk and then there is risk one should not take. It also comes from me owning an emerging markets fund that I long ago sold and do not plan on owning again. You have to know what you own and why you own it. I do . Oftentimes you have to lose before you can learn to win. In 2000 the tech stock I owned went bankrupt. I did not have alot in it. In 2010 I traded my emerging markets fund into something I actually understand. Other than those two I have not traded or sold anything.

You will occasionally lose money. There is no way around that. If you have a diversified portfolio, over longer periods of time you will very likely not lose money. You can avoid the more volatile assets, but even the less volatile assets occasionally lose money. If you hang in there, they usually recover.

It's probably good to avoid concentrations in specific market segments like high tech companies, or even very volatile asset classes like emerging market stocks. Putting all your eggs in just one or two categories betting that they will outperform in the short term often doesn't pan out, which is why many of us stay well diversified.

 

[target2019]

Is the Stock Market Cheap?

I think that Doug Short article presents a balanced view of where we are. Common measurements say the S&P 500 is over a regression line. You can dig deeper, but the additional data won't help most of us. Just re-balance on schedule, and let your Asset Allocation do the rest.