Bull Market or Just Bull?

Written By: John Browne  |  Posted: Tuesday, March 30th, 2010

Last week, the Dow closed at 10, 741, up some 64 percent since its 2009 lows, [03/19/10, Yahoo! Finance] when most markets had priced in the likelihood of financial Armageddon. As the markets have rebounded from the brink of disaster, many Wall Street cheerleaders have proclaimed the dawning of a major new bull market. If we measure market cycles biannually, and if bull markets need not eclipse peaks achieved in previous cycles, then this forecast is spot on. Of course, most investors are not saving for next week, but for homes, college tuitions, and retirements. For these longer term investors, the euphoria of the current rally may soon turn to despair when the market faces the unsavory fundamentals of a second financial crisis.

We have long raised the point that, in general, the political, economic, and financial fundamentals of our new mega-government era do not support a sunny long-term outlook for U.S. stocks. Today, the S&P 500 trades at 21.6 times current earnings, which is 32% higher than the average over the last 30 years. [03/24/10, multipl.com] With so much economic uncertainty on the horizon, I'm not sure how you make the case that the market is still undervalued. The nature of the recent stock price move appears to be that of a bear-market rally, not a bull-market resurgence.

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