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Is this bull market overdone and about to go pop. Well, there is a theory – which data seem to support – that the market moves in cycles of about 17 years up and a comparable period down. And we are in the beginning of the upswing. Raul Elizalde, founder of Path Financial in Sarasota, Fla., explores that notion.
We often hear these days that stocks are overpriced and due for a correction. Despite the fact that the S&P 500 is hitting all-time highs after climbing 250% in eight years, it’s clear that the rally has not quite captured the heart of investors. Analysts were never really convinced either and have issued similar warnings for years. Meanwhile, the bull market marches on.
Is it too late to join in? That is certainly a risk: it is a well-known fact that investors abandon caution at the worst possible times. But when the current rally is put in context with past performance, the case for extreme caution loses some of its potency.
Stocks have been known to climb far more than the 250% registered since 2009, such as when they soared 1,000% between 1942 and 1966 and 1982 and 2000. Both rallies eventually died, of course, but false calls that the end was nigh were issued many times before the bull-slaying busts finally arrived.
Booms can be confoundingly persistent. The 10-fold rise from 1982 to 2000, for example, did not ebb gradually: instead, it sped up in the mid-1990s as investors became increasingly bullish and optimistic.
Conversely, busts come along with violence, often just after people stop recognizing that markets can do just that. In the late 1990s, for example, nobody could foresee the brutal three-year bear market that started in March 2000.
Market crashes are a feature of how markets behave, and have always been around. The 2008-09 financial crisis or the 2000 dot-com crash, for example, were no more devastating than the Crash of 1929, or the long-forgotten Panic of 1873 that forced the first stock market closure.
These booms and busts come in unpredictable cycles of different duration. Nobody has a way of forecasting market turns.