Is a Slow down Coming? Doe your portfolio contain a hedge? The stock market just celebrated the fifth birthday of its bull market, and if you have a 401(k) or other investments, youve probably been at the party. Americans have been slow to trust the recovery. They learned in 2007 how quickly a party mood in stocks and housing can turn into an excruciating multiyear hangover. But the guest list for the recent party has been large. About 21.8 percent of household assets are now concentrated in stocks, according to Gluskin Sheff economist David Rosenberg. That’s more than the 19 percent that preceded the financial crisis and recession. During 2013, as individuals recovered their courage, they poured a record $172 billion into stock mutual funds and exchange-traded funds. But after that show of confidence, market historians are now urging caution. According to history, this stock market bull is getting pretty old. Analysts are watching for signs that it might start inflicting losses. When bulls get tuckered out, bear markets, or periods when stocks plunge at least 20 percent, follow. Typically, bull markets, or continuous periods when stocks bestow gains on investors, don’t last to their fifth birthday. Since 1900, bull markets have made it to 5 years old only six times. “And only three lived to see a sixth birthday,” said Doug Ramsey, chief investment officer of The Leuthold Group. “Life expectancies at such an advanced age are limited,” he said. “This bull is poised to become the fourth-longest on record.” On average, the Dow Jones industrial average climbs 134 percent before the bull breaks down and stocks plunge into a bear market. And the Dow has climbed 150 percent in the current bull market. You might think that would mean Ramsey would be backing away from stocks at this point. But he’s not, yet, he finds it “worrisome” that investors might be overconfident now. He notes that they’ve been willing to buy the dips when stocks have declined. “It’s a lesson they invariably seem to master only when it’s late in the game,” he said. Ramsey and other analysts have noted that stocks are pricey now. Yet, moderately high-priced stocks don’t typically undermine a bull market unless they are accompanied by declining profits and a sharp economic slowdown. Profits reported in the fourth quarter exceeded analysts’ expectations, and while the economy has slowed somewhat lately, most economists expect gains this year. What could upset the stock market would be serious economic problems emerging from China and spilling over to the rest of the world, said DoubleLine chief investment officer Jeffrey Gundlach. Currently, he said, “China is a real worry,” but the future is unclear in the world’s second-largest economy. “A lot of analysts have cried wolf over China” the past couple of years, “but it seems like it might actually be happening this time,” Gundlach said. China is the world’s largest consumer of copper, and “copper is absolutely crashing. That’s a real sign of a slowdown.”
Posted on: Tue, 18 Mar 2014 17:00:00 +0000