SECULAR BULL MARKET… OR NOT REALLY?

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

correlation-rates-and-bull-markets

 

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.

Trailing Price-To-Earnings (Trailing P/E)nominal-price
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

hypothese-1

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Blog at WordPress.com.

Up ↑

%d bloggers like this: