Is it the End of the World for the Market?
If you're disciplined about asset allocation, judicious in rebalancing and -- most important -- consistently put savings into your portfolio, then what well-regarded fund manager John Hussman has to say this week shouldn't freak you out too much. But here it is: The current bull market, if history is any guide, is about to end. (It's worth noting that others say the end of the world is May 21st. That could also hurt stocks.)
If you accept the argument that we're currently in a cyclical (that is, short-term) bull market working its way through a secular (meaning long-term) bear-market cycle -- otherwise known as an upswing in a longer-term downward trend -- then some data suggest this bull has run its course, Hussman writes in his latest note to clients.
Mind you, Hussman, manager of Hussman Funds, has been extremely cautious throughout the recovery. His most recent note begins with this familiar refrain:
The stock market continues to be strenuously overvalued here, with a variety of historically reliable methods indicating probable total returns for the S&P 500 of only about 3.5% over the coming decade. This does not necessarily imply much about near-term market returns, though the continuing syndrome of overvalued, overbought, overbullish, rising-yield conditions does contribute to near-term risk.What's a bit spookier in Hussman's latest missive is some data he presents courtesy of the good folks at Nautilus Capital, a market research firm. If we are indeed in the long-term market pattern Hussman (and others) say we are, well, we've more than had our fun by now. Even if judgment day is not upon us, we just had the next best thing: a heavily hyped internet stock IPO that more than doubled out of the gate. Could Linkedin be the Blackstone IPO of this cycle?
Going back to 1907, the average bull market has lasted 26 weeks, with the S&P 500 rising on average 85 percent, according to Nautilus data. Now here's the uncomfortable part: The current bull market that began in 2009 has now lasted 26 weeks and the S&P 500 has gained 102 percent over that span. See the chart, courtesy of Hussman and Nautilus, below:
Do bear in mind that Hussman has been cautious throughout the latest bull market, so his equity-focused funds have missed out on a lot of the fun and are underperforming against the broader market. But then investing for the long term isn't about having fun. It's about having a plan and sticking to it.
As I wrote recently, we're now firmly in the third year of a bull market (fingers crossed that it holds) and that means it may be time to think about rebalancing your indexed holdings. Whether Hussman is proven right or wrong, patient, disciplined, dollar-cost-averaged, diversified investing is boring. But it works.
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