When do bull markets end?
Bull markets typically end when valuations are extreme, the Fed is tightening monetary policy, and investors are over-enthusiastic about potential equity returns. Valuations are quite attractive given that the 10-year t-note yields roughly 1.5%. Investors are very leery of equities, and equities are no longer the asset class of choice. The Fed's most recent round of easing has spurred the economy further, and a tightening of monetary policy seems far into the future.
The opportunity cost of fear has been very high. Both institutional and individual investors have largely missed out on a doubling of the US equity market. If this cycle continues to follow historical precedent, as it has done so far, then investors will eventually try to play catch-up, and fund flows will likely turn decidedly positive.
The bull market seems to be a very typical one and, like past cycles, is based on fear. This bull run may still be in its early stages despite being forty-two months old.
Richard Bernstein is chief executive officer of Richard Bernstein Advisors LLC, a multimarket equity strategy subadvisor of Eaton Vance Management. Rich has over 30 years of experience on Wall Street, including most recently as chief investment strategist at Merrill Lynch & Co