Stock market's record bull run shows few signs of slowing down
Stock market averages are hitting record highs routinely, and there are few red flags to indicate they are about to peak. Instead, historical data suggest a continued upward trend.
Despite the goings-on in Washington, the stock market has been setting numerical records.Skip to next paragraph
Subscribe Today to the Monitor
Last Thursday, both the Dow Jones Industrial Average and the Standard & Poor’s 500 index had surpassed the Oct. 9, 2007, bull market high. Now, many investors are wondering how much longer this run can continue.
On the positive side, the stock market is carrying a lot of momentum into April. Since the beginning of the year, the Standard & Poor’s average is up 10.2 percent including dividends. The Federal Reserve is still keeping interest rates low. And, despite fears that the financial crisis in Cyprus might spread, the US economy seems insulated – so far.
RECOMMENDED: Can you manage your money? A personal finance quiz.
But there are reasons for caution, too. The affect of sequestration – the automatic spending cuts in Washington – have not yet filtered through the economy. Stock analysts are anxious about the prospect for earnings going forward. And there is uncertainty over what might happen with North Korea, which appears to be edging closer to some form of confrontation.
“There are always dark clouds on the horizon,” says Fred Dickson, chief investment strategist at D.A. Davidson & Co. in Lake Oswego, Ore. “But so far only a couple of minor items are signaling caution.”
A recent analysis by Jeffrey Kleintop, chief market strategist at LPL Financial in Boston, looked at 10 indicators that often are red flags for investors. He found only two of 10 were red, three were yellow for caution, and five were green.
The two red flags: the apparent complacency of investors who risk being surprised by a negative event or data, and consumer confidence appears to be starting to fall.
Mr. Kleintop’s yellow caution flags include the possibility that expectations about the strength of the economy may be too high, that corporate earnings estimates may be too high, and that the difference between the two-year and 10-year US Treasury notes is starting to flatten. This would indicate the bond markets are expecting lower economic growth in the months ahead.
In another analysis, Sam Stovall, chief equity strategist at S&P Capital IQ, says he finds few signs that often precede a market peak. For example, he writes that the economy does not appear to be overheating, interest rates are low, and price to earnings-ratios are not at a level that would signal a peak in the market.