How Long Will the Bull Market Continue?

Within the markets, a special kind of thinking sometimes seems to override logic. So it should come as no surprise to know that the U.S. markets stayed calm for the most part recently, despite troubling news about Greece’s fiscal crisis, China’s wobbly stock market, and important geopolitical developments with Iran. While it is true that individual stock prices have had ups and downs, both the Dow Jones Industrial Average and the Standard & Poor’s 500 stock indices have stayed within a tight trading margin – which means that despite some gyrations in the first half of 2015, both have ended up pretty much where they started in January 2015.

The Dow has gone above and below its December 2014 closing some 21 times in the past seven months, with the highs equaling the lows to create a stalemate. In behaving this way, the cumulative immobility of the Dow and the S&P indices has set records – but perhaps not the type of record breaking that heartens brokers. In contrast, the Nasdaq Composite Index, which is dominated by technology companies, has been a winner this year posting gains of more than 7 percent year-to-date with a whopping 24.5 percent increase in the biotech sector.

In this scenario, investors who bought and held on to their stock holdings – benefiting from the upward trajectory of the bull market since 2009 – have fared well. In many instances, corporate earnings have increased too, boosting the individual value of their shares. Now, many investment experts are beginning to raise the specter of a market correction. The length of the market’s bull run and its lack of volatility make some feel a downturn is long overdue. The current bull market is one of the longest in U.S. history (the third-longest stretch without a correction). In fact, the current bull market has run more than twice as long as typical bull markets. This has made some experts anticipate a correction – a downturn that many hasten to add would help the future long-term vitality of the market.

The Impact of the Fed

The timing of the Fed’s inevitable interest rate increase remains a major factor in brokers’ forecasts. Some are expecting a rate increase in September and predict it will have an adverse effect on stock prices – especially those not considered blue chip or quality.

With these two factors in mind, some investment experts are encouraging clients to revise their expectations for the future and to consider making adjustments to their holdings in favor of blue chip shares that usually retain value better in a downturn. Some are encouraging investors to look beyond the United States to Europe and Asia, where stocks have lagged behind the performance of U.S. stocks, noting that these markets are not facing a possible fallout from interest rate increases.

The commentary above is general in nature and is not intended to replace the advice of professional tax and investment counsellors.

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