Bull market? Secular bear market of 2000 isn't over yet, says Easterling

Crestmont president says investors can expect normal to below-average returns for five to 10 years

Apr 30, 2013 @ 12:01 am

By Dan Jamieson

The market made new highs recently, but the secular bear market that began in 2000 isn't over, according to Ed Easterling, president of Crestmont Holdings LLC, and a guru of long-term market cycles.

In a recent update to his popular research, he said that as of the end of last month, the S&P 500 traded at a 22.4 price-earnings ratio using his 10-year normalized measure, a level that is fully valued given low inflation.

“The low- to mid-20s is normal with low inflation,” Mr. Easterling said. “But what you can expect from here is normal to below-average returns … We're pretty far away from a [new] secular bull — five to 10 years at least.”

The 1990s bubble market became so far overvalued — reaching a normalized P/E of more than 40 — that it will take extra time to bring valuations back down to levels where a new bullish phase could start, Mr. Easterling said.

Secular bull markets usually begin with a normalized P/E of about 10 or less, he said.

“The market will probably chop around” from here, Mr. Easterling said.

“It doesn't have to go down 50%,” he said. “The market can stay here another decade while earnings come up” and valuations move down, Mr. Easterling said.

Recent highs in the market recall 1972, when the Dow Jones Industrial Average made new highs almost a decade before a new bull market began, Mr. Easterling said.

The big risk now, though, is getting into either an inflationary or deflationary period, which will drive valuations down by taking stock prices lower, he said.

Whether this is a new bull market is just “semantics now,” said Doug Ramsey, chief investment officer of The Leuthold Group LLC, a research firm.

“We would argue we made the secular lows on stock prices … on March 9, 2009,” said Mr. Ramsey, who also pointed to the 1970s for a historical lesson.

Although a secular bull market started in August 1982, the bear market lows were made in the fall of 1974, he said.

“And that's exactly what we saw in March 2009,” Mr. Ramsey said. “I think now we'll see a multiyear base-building period that could last another four or five years.”

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

What can advisers learn from the first female fighter pilot?

Pressure is pressure. Whether you are taking off from an aircraft carrier or dealing with the unforgiving movements of the market, you need to have a plan. Carey Lohrenz, the world's first female F-14 pilot, has some advice for advisers.

Latest news & opinion

10 most affordable U.S. cities for renters

Here are the U.S. cities that are most affordable for renters, according to Business Student.com, which compared the cost of rent to average salaries.

9 best - new - financial adviser jokes

Scroll through for nine new financial adviser laughs.

Captrust, prominent 401(k) advice firm, ramps up its wealth management business

Captrust wants to grow annual revenue from wealth management to 50% from 30% over the next five years.

Fidelity CEO says zero-fee funds aimed at expanding its universe

Johnson says way to prosper in financial services is 'by building relationships.'

SEC advice rule contains a huge hole

Jay Clayton aims to clear up investor confusion by drawing a distinction between brokers and advisers in the agency's proposed package of revised standards. But where do dual registrants fit?

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print