Without a 20% correction in the next five months, this current bull market could turn eight years old early next March. This past April it became the second longest on record, though it still trails the 1987-2000 bull run by more than six years. 

That reality alone is reason enough for advisors to check their bearings and assess where the economy and equities are in the cycle. From mid-2014 until last summer the Standard & Poor’s 500 index found itself mired in a range between 1,800 and 2,100. 

Since the Brexit shock and subsequent rally starting in late June, equities have showed signs of breaking out. But a weak economy and uncertainty about politics in the U.S. and Europe, coupled with a profits recession, have limited the advances to 7.8% in 2016’s first nine months.

To sustain a move to the next level, several developments must occur. First, the equity market must shift from an interest rate-led market to an earnings-led variant at a time when profit margins continue to hover near historic highs and are likely to be squeezed by high labor costs.

Many skeptics have labeled the current bull market as a creation of the Federal Reserve and central banks around the globe. At Financial Advisor’s Inside Alternatives conference in Denver this past September, Gluskin Sheff chief strategist David Rosenberg pointed out that the Fed itself has consistently underestimated the weakness of the American economy since the recession ended.

The Fed has relied on models and data developed for other recoveries, but the “near Depression” of late 2007 through the first half of 2009 changed the way Americans save, spend and invest in ways the old models can’t capture. Strikingly, the Fed has overestimated the lone variable over which it exerts total control—the fed funds’ rate. In a similar vein, Wall Street analysts have found themselves repeatedly cutting their earnings estimates in the last few years.

BlackRock’s chief strategist Russ Koesterich noted in early October that stocks can’t count on bonds to propel their next move higher. But while the Fed is expected to raise rates at least once after the presidential election, other events, elections and weak economies in Europe may restrict central banks’ maneuvering room in 2017. Several rate hikes likely would trigger a flood of foreign assets flowing into U.S. Treasurys and other securities, potentially destabilizing the global financial system.

That said, the prospect of future Fed rate hikes has already influenced U.S. equity performance this year, as the favorites of the first half—dividend-paying telecoms, utilities and consumer staples—have retreated since Brexit. Many of these once-loved, low-volatility bond substitutes are down as much as 10% since June.

Some like Jeff Saut, Raymond James’ chief equity strategist, think we are in the middle of a powerful secular bull market. Speaking at a conference in February, Saut said it could take the S&P 500 to 5,400 by 2025. Even to those who agree this is a secular bull, that sounds excessively optimistic since equities would have to produce annualized returns in the mid-teens for nine years to reach those levels.

For an opposing view, one can always turn to the folks at Grantham Mayo, often described as perma-bears. Earlier this year, their respected seven-year model predicted that U.S. large-cap equities would return virtually zero between now and 2022. 

In recent years, Grantham Mayo has maintained that large-cap equities could be overvalued by as much as 40%, attributing half of the valuation excess to unsustainable profit margins and the rest to inflated price-to-earnings multiples. 

Most financial quants would assign low probabilities to either of the outcomes outlined by Grantham Mayo or Saut materializing. Roger Ibbotson, chairman of Zebra Capital, maintains it is difficult to find many seven-year periods when stocks have returned zero.

Ibbotson also notes that equities outperform bonds about two-thirds of the time. In today’s near-zero interest world, it’s difficult to conceive of any environment where most bonds provide investors with any returns like those of the last 30 years.

Cycles Have Lengthened

It’s no secret that since the early 1980s both economic and market cycles have lengthened. Economic recoveries in the 1990s, 2000s and the current decade have all started out at a snail’s pace and only in the 1980s and 1990s did America experience anything like a boom. In those good old days, the economy and equities had a surging bond market as a tailwind.

Other factors besides interest rates are likely to determine which sectors perform well in the next few years. Since this bull market got rolling in 2009, U.S. growth stocks have bested their value counterparts—and foreign markets in general—by a wide margin until this year. 

Late last year, many observers saw parallels with the 1990s. Market leadership had narrowed to a handful of megacap growth stocks like Facebook, Google and Amazon in a pattern reminiscent of the final days of the 1990s’ tech bubble, when shares of Cisco Systems and a few other stocks went into orbit. One major difference, however, is that public participation was frenzied in the 1990s and totally comatose during the last five years, when retail investors remained net sellers of equities as the S&P tripled.

From January 1 through October 12 this year, signs of a reversal to value appeared as the Russell 1000 Value Index rose 8.70% while its growth counterpart advanced only 4.40%. But nine months is not a sufficient period to definitely declare that the baton has passed from growth to value or that the bull market is on its next leg.

Like the economy, it’s striking how long the trend can remain in place over the last 20 years. From 1995 to 2000, growth consistently outperformed value.

Ibbotson notes that from 2000 up until the financial crisis, growth got hammered and value outperformed. Today, signs are surfacing that growth stocks are running out of gas. 

Nowhere is this more evident than in the once-booming biotech universe. Both presidential candidates have slammed drug prices. Furthermore, indications of froth and start-ups going public recalled the dot.com era. Two years ago, companies were able to do IPOs on the basis of a scientific paper authored by a company scientist.

It is also the primary reason U.S. equities have beaten most developed markets. Almost all the sexiest industries—e-commerce, social media, technology and (until recently) biopharma—are dominated by American businesses. In contrast, the major European indexes are top-heavy with telecom, banks, energy concerns and other mature companies.

Ibbotson’s latest research has focused on investment popularity, or more precisely on illiquid and unpopular companies. Seen through a certain lens, this as a variant of behavioral finance applied to valuation.

Assessing the powerful bull market of the past seven years, it is normal to expect that growth would beat value, Ibbotson says. “Good companies are not the same as good stocks,” he adds. 

However, a body of research indicates that, over the long term, companies on the deep value end of the spectrum measured by price-to-earnings and price-to-book multiples can produce excellent results. “Distressed companies are not companies you feel good about owning,” Ibbotson explains. “Value is a permanent premium. Often they are not great companies.”

Like value stocks, small-cap equities have trailed large-cap stocks for most of the current bull market. “Small-cap stocks have higher returns for a reason,” Ibbotson says. “They are hard to buy and you can’t buy [that] much of them.”

Evidence supporting the difference between large- and small-cap growth and value premiums can be found on a table at Fidelity’s Learning Center examining value and growth premiums for the five-year rolling periods since 1990 ending in 2011- 2015. When comparing large-cap value versus growth, each asset class outperforms for exactly half the number of five-year periods. However, the premium for value is 4.62% while it is only 2.74% for growth.

Moving to the small-cap universe, value tops growth in 73% of the five-year rolling periods. Here, however, the gap is smaller, with the small-cap value premium coming at 4.87% and the small-cap growth premium at 3.24%.

If this bull market is to continue, new leadership needs to establish itself. A glance at history suggests the time would appear ripe for value.

Looking at the present, however, many believe we are living in an age of disruption and accelerating change, altering both the growth and value universes. Many new biotech and social media IPOs already are failing, but it’s hardly paranoid to wonder if many established value stocks could go the way of Eastman Kodak. This is why the rotation of companies in and out of the S&P 500 is expected to speed up over the next decade.

Lastly, there is the elephant in the living room, politics. America’s appalling presidential election will end shortly—and mercifully. But in 2017 political pro-wrestling will move to Europe and it won’t be any prettier. Hard as it is to believe, Europe’s debt and demographic problems make America’s pale.

Advisors looking at the near term should remember that, in recent times, equities did not perform well in the first year of the first terms of Presidents Reagan, Clinton or Presidents Bush. The lone exception is President Obama, who entered office when stocks had nowhere to go but up. 

Whoever wins, it is in his or her interest to have a recession in 2017, not 2019. Add to that the probability that any presidential honeymoon could endure for long after an acrimonious election season is slim. Instead, it seems likely that the ill will pervading Washington since 2004 will spill over into 2017. 

Contrarians who say uncertainty and fear create opportunities for investors are likely to get what they want.