Typically, money moves to the site of highest returns. Currently, there seem to be no alternatives for good returns on investment than the stock market. However, that will change at some point in the future. The question is, when? As I look at the current chart of the DJIA at over 20,000, I wonder how long this current run will last. Most bull markets or bear markets last from two to five years. This current bull market is more than eight years old, so it should be coming to an end. Or will it?
To answer that question, you need to consider the business cycle and relate that to how and when you should make investment decisions. The current business cycle is eight years into a nine-year cycle. Since the last recession occurred in 2009, I would expect the next major recession by 2018 and, since the stock market leads the economy by about six months, I would expect a bear market by the end of 2017. As you can see in the graph below, we are nearing the bottom of the downward phase of the stock market cycle, and this is coincident with the bottom of the downward phase of the business cycle. When two major economic cycles are in-phase and bottoming out at the same time, it has an amplifying effect. This is why I believe it is a very dangerous time for stocks.
We had seen prior Dow high points (before the Great Recession) of almost 14,000 in June of 2007, and the Dow rose above 21,000 in 2017, so it makes you wonder how high it can go. However, it is very risky at these higher levels and difficult to predict when the peak will be. So it would be wise to watch very carefully how the market is responding to economic and political conditions. Remember: When it comes to the stock market, bad things usually happen in October.
The next Super Cycle upswing of the stock market will be an 18-year secular bull market from 2018 to 2036 that will see the market climb from 10,000 to 100,000. We don’t yet know how low it will go as a result of the next recession, so I would definitely wait until there is some confirmation that the bear market is over before jumping back in. However, I do expect the 2020s to be a good time to be in the stock market. I also expect the first half of the 2030s to be healthy for the stock market, but I do expect the peak of the next secular bull market to occur around 2036.
The 2020s will see a stock market boom the likes of which we have never seen before. It will be as momentous and significant as the 1990s or the 1920s stock market booms. Practically every day there will be new market highs. The stock market will become the topic of everyone’s conversations. It will become a major media-mania topic. Each year there will be a new 10,000-point barrier eclipsed. People will come to think that the market will always go up. Eventually, there will be a realization that the market is overpriced and, as with all bull markets, at some point the end will come. This readjustment will probably be painful, as in all speculative runs, and the people who have gotten in last will be the ones feeling the worst impact. Let’s hope you are not one of them.