With the current bull market into its fifth year, one might wonder if it’s worth buying the recent dip or otherwise staying invested. Isn’t the party close to ending? One old rule of thumb, according to some technical analysts, is that market cycles tend to run about four years. We are well past that point. Even if there is another rally, so what? Most of the gains are behind us. Wouldn’t it just be better to wait in cash and bonds for the bear market and buy cheap for the next bull phase?
Yet, BCA Research, one of the more substantive (and expensive) investment advisories, thinks there is another two years to go in the bullish trend (although there could be a retest of August lows in the near term). “Ultimately,” they say, “economic growth and earnings dictate equity market trends,” and growth outside the U.S. remains strong while growth in the U.S. is likely to stabilize given the “increased likelihood of easing by the Fed” and the stimulus provided by the slide in the dollar.
The August crisis is “very similar to the recession fears of 1998, which prompted Fed easing,” adds the advisory. That means another “powerful” rally is on the way, albeit accompanied with much volatility. The liquidity boom, which has already inflated most other assets including commodities, bonds, and real estate, is poised to push into still reasonably valued stocks. The recent shakeout in risky assets should be regarded as no more than “part of the maturing process of the equity bull market.”