We are almost 10 years into this bull market, and according to some analysts it is just a matter of time before the market simply runs out of steam and falls flat on it’s face in not so many words. Meanwhile, others will point to the decline in 10-year interest rates as a recession indicator. But if you look at it critically there is some evidence to the contrary and it might be the best time to stay invested in the short-term.
The S&P 500 price earnings (P/E) ratios and nowhere close to where they were during the 2008 recession and the tech bubble in 2002. In 2002 P/E ratios reached over 45 between January and March, and in 2008 P/E ratios reached over 115 between April and June.
Markets bubbles tend to pop from exuberance! When we are at a point in time that there on no more buyers left in the market. There is still a lot of market worry whether it be US-China trade talks, Brexit, or fear of an economic slowdown or recession. Yes, the market has overall gained over the past few years, but we have slowly been climbing a wall of worry.
It should also be noted that after a bond yield curve inversion like has just occurred the stock market has often risen in the next 12-18 months before the recession started. In 2000 it took 13 months for the recession to begin and in 2006 it took 22 months. If you took your money out of that market immediately at time of yield curve inversion you would have missed out on the biggest gains. On our end we plan to stay fully invested and will be ready to selectively sell overvalued securities in the event of a market pop.