By Uri Gruenbaum
It was only five years ago, on March 9th, 2009, that the Dow experienced its fourth straight week of losses and the S&P-500 was below 700 for the first time in 13 years. However, this stock market crash is now a distant memory as we celebrate a bull market of five years, where the S&P-500 is up 174.7% and the Dow Jones Industrial Average has gained 148.35%. This period of the S&P-500 gaining 20% or more is the sixth longest running since 1928, according to Bespoke Investment Group, and this optimistic outlook has more and more investors joining the game. But, the federal assistance that helped produce this comeback is about to start slowly ebbing away, and with more expensive stocks and already high profit margins, the market is looking riskier and riskier.
The stock market's revitalization after the bottoming-out in 2009 was largely fueled by the Federal Reserve Bank with their slashing of interest rates almost to zero, as well as buying bonds in the open market. But now the Fed is starting to cut back on its bond purchases and they are looking to let interest rates return to normal. The government is crossing their fingers that markets will stand on their own without its help, but there is certainly some apprehension in the air as the Fed starts to pull-out.
At the same time that the Feds are backing away from the market, stock prices have reached historically expensive prices and company profit margins are so high that it is almost impossible for them to grow them any higher. "The stock market doesn't look like it is going to get year after year of double-digit growth as it has in recent years, but the bull market can continue as long as you get continued economic growth pushing stocks higher." Says Russ Koesterich, chief investment strategist at investment firm BlackRock Inc. And, Scott Clemens, chief investing strategist of Brown Brothers Harriman Private banking, noted the volatility of stocks could continue stating, "I think we will have multiple 5% to 10% corrections in the next 12 to 18 months."
Despite the underlying uneasiness of this bull market, last year U.S. stock funds received $172 billion, according to the Wall Street Journal. More and more investors are responding to the optimism of the bull market and are putting their money back into the market.
So, is now the time to BUY, HOLD, or SELL? While some chief strategists are expressing caution, analysts are still active to recommend BUY. Looking at analyst recommendations from the start of the year until March 9th, we find that 8.1% of analysts recommend a SELL rating and 57.2% saying BUY. However, looking at the data for the same time period last year, SELL ratings received 10.3% of all ratings and 54% of all ratings were BUY. The remaining recommendations were HOLD ratings.
Analysts seem confident that now is the time to BUY. What do you recommend?
The year has only begun, but I'd like to wish the Bull Market another happy 5 years of growing big and strong. Here's to wishing you many more years of positive stock growth and happy investors.
Uri is co-founder and CEO of TipRanks, an analyst accountability company.