Stocks have nearly doubled since the March 2009 bear market low, raising an all-too familiar question: Is it too late to buy stocks and profit from the rally?
To provide a road map for individual investors, including those who have played it safe by staying on the sidelines or buying bonds, here are some facts about bull markets the past 80 years:
• The average duration of bull markets since 1932 is 3.8 years, InvesTech Research says. “In historical terms, this bull market might still be young,” editor James Stack says. “It won’t celebrate its 2nd birthday until March 9.”
• Some 80 percent of bulls lived past their 2nd birthday. But the survival rate drops after that. Barely half saw their 3rd birthday.
• The average gain of these past 15 bull markets is 136.4 percent. The current bull is up 93.7 percent. However, while that’s below the average, it is nearing the median (half weaker and half stronger) gain of 101.5 percent. But Stack says that’s not necessarily a sign of a top, given that the market is rebounding from its worst drop since the Great Depression.
Bulls tend to be killed off by imbalances in the economy, serious bouts of inflation, a sharp rise in interest rates orchestrated by the Federal Reserve or a rolling over of key leadership stocks. “Today we are not seeing those types of warning flags,” Stack says. “It is not too late to get in.”
One warning flag to watch is the fallout from the bulging $1.5 trillion budget deficit, says Patrick Adams of the Dunham Loss Averse Growth fund. While he admits the economy is in an upturn due to the Fed’s easy-money policy, he says it is unlikely to last due to the longer-term structural problems caused by too much debt. And even though he thinks stocks can move higher, he says investors must brace for a pullback of 10 percent to 20 percent in 2011. Adams says he’ll remain bullish if the S&P 500 can stay above 1300.
Lewis Altfest, a financial adviser at Altfest Wealth Management, thinks people who buy stocks now will make money in 2011. He notes that the S&P 500 is still 16 percent off its all-time high and, therefore, has more room to run. “Corporate profits are exceeding expectations; the economy looks like it will have a good year; and the price-to-earnings multiple are very reasonable,” he says. In another good sign, the unemployment rate fell to 9 percent in January.
But Brian Belski, chief strategist at Oppenheimer, is concerned that too many people are bullish. He says the market has priced in strong profits and a rebounding economy, and is “pooh-poohing” real geopolitical concerns in the Middle East, debt problems in Europe and overheating emerging markets. “I’m concerned the market has gotten ahead of itself.”