Tags: Bull markets | old age | stocks | Clif Droke

Author Clif Droke: Bull Markets Don't End of Old Age

By    |   Friday, 24 April 2015 05:30 AM

Some commentators say the fact that the bull market in stocks is already six years old puts it at risk, but that's not the case, says Clif Droke, editor of the Momentum Strategies Report newsletter.

The S&P 500 index stood at 2,105 Wednesday afternoon, less than 1 percent below its record high.

"Does an old bull market necessarily give rise to a bear market by virtue of its age? Does old age in fact kill bulls?" Droke writes on Financial Sense.

"A careful study of market history provides a negative answer to this question. Old age doesn’t kill bull markets. In fact, it’s not uncommon for equity bull markets to last eight to nine years before they terminate."

We're now only two years into the second half of a bull market—the momentum phase, Droke says. This period is "typically characterized by declining volatility and by a decisive upward bias that is all but impossible to ignore," he explains.

But MarketWatch columnist Jeff Reeves sees possible danger ahead.

"I remain a long-term bull and extremely optimistic about the U.S. recovery for this year and beyond," he writes. "But that doesn’t mean denying the risks that threaten the economy and stocks."

Among the ones he mentions:
  • "Valuations are stretched." Robert Shiller's cyclically-adjusted price-earnings ratio for the S&P 500, which includes 10 years of earnings, stands at 27.4. That trails only the pre-market crash levels of 1929, 2000 and 2007.
  • "Earnings pressure." Analysts expect a first-quarter profit drop of 4.1 percent for the S&P 500, according to FactSet. "Taken alongside valuation concerns, investors should take this Q1 earnings season quite seriously," Reeves says.
  • "Retail sales still challenged." They fell in three of the last four months, and rose by a smaller-than-expected 0.9 percent in March.

Hedge fund star David Einhorn, president of Greenlight Capital, shares some of Reeves' concerns.

"Even if this quarter’s S&P earnings will ultimately be somewhat better than negative 5 percent versus the first quarter of 2014, this level of earnings degradation poses a risk to a market trading at a premium multiple of earnings assisted by record high margins," Einhorn writes in a recent letter to shareholders.

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Some commentators say the fact that the bull market in stocks is already six years old puts it at risk, but that's not the case, says Clif Droke, editor of the Momentum Strategies Report newsletter.
Bull markets, old age, stocks, Clif Droke
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2015-30-24
Friday, 24 April 2015 05:30 AM
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