Here's a simple question with big implications: Was 2009 the start of the next secular bull market?
Earlier this month I sat down with Liz Ann Sonders, chief market strategist of Charles Schwab, and got her take on what stage of the market cycle the Dow Jones (^DJI 0.85%) may be in. Have a look (transcript follows):
Sonders: Let’s assume it’s coming to the end and starts to go down again. We will look back and say that the secular bear that started in March of 2000 is ongoing and that all we got in the last four years was just a pop back to 2000 and 2007 highs.
Secular bull and bear markets by definition are really only figured out in hindsight. I mean, it’s wonderful if you were the analyst or the strategist out there saying it’s a secular bull, and then you find out years later that that’s how it was classified, but we won’t know probably for some time.
I think the fact that the things typically in place at the beginning of a new secular bull market all were in place back in the beginning of 2009. You had negative real interest rates. You actually, interestingly, had a high and still rising unemployment rate, and a lot of people look at that and think, "Well, why would that suggest the beginning of a bull market?" Because that’s the most lagging of indicators, and that has always been in place when we’ve started a new secular bull.
Where people quibble is whether valuations got low enough at the low in 2009 relative to other secular-bull lows. On the surface, you could argue no, but I think you can't look at valuation in a vacuum; you have to look at the inflation environment. And although in the early '80s we bottomed at about a six or seven P/E, we had double-digit and rising inflation -- very, very different than having, say, a nine or a ten P/E in 2009 in a deflationary environment. So I think if you make that adjustment, subtle or otherwise, you can check off pretty much all of those things that have been in place at the beginning of secular bull markets in the past back in March of 2009.
