Since the march 2009 lows, major indexes made a huge rebound. The question is, what’s next? What are the variables in place right now?
Ok so let’s tackle the interest rates correlation with bull & bear markets. Yes if we go back to the last 50 years +. There needs to be good GDP growth to support secular bull markets, and interest rates are either low or on the way down.
See below chart
But If you look carefully, we also had 2 recessions since 2000 with interest rates falling as well. So we definitely need more filters….
Let’s take the S&P nominal price with trailing P/E ratio
Trailing price-to-earnings (P/E) is calculated by taking the current stock price and dividing it by the trailing (EPS) for the past 12 months. This measure differs from forward P/E, which uses earnings estimates for the next four quarters. As a result, forward P/E can sometimes be more relevant to investors when evaluating a company.
Suddenly our market doesn’t look that expensive, not cheap either by that measure. Which leads me to the following conclusion. I believe we’re in the stage where a long secular bull markets needs confirmation. First we’ve gone nowhere since 2000 (lost decade +). If it fails though we might live a repeat of the 1970’s…. Not a big fan.
Macro predictions are really hard to anticipate, no doubt. The graphic below is what I mean by secular bull market confirmation. As you can see we’ve been below the red line for 13 years. And so yes there is a breakout that needs to be confirmed