There’s a Lot to Like About Stocks at Record Highs
As long as the economy is healthy, profits keep growing, and inflation and interest rates remain in check, the bull market should continue.
This bull market is strong.
Photographer: Chris Hondros/Hulton ArchiveIt is natural for investors to worry about a downturn in the stock market after a tremendous bull run like the one for U.S. equities over the past 10 years. Just as trees don’t grow to the sky, the stock market can’t keep rising, can it? As long as the economy remains healthy, corporate profits keep growing, and inflation and interest rates remain fairly well-behaved, the bull market should continue.
The S&P 500 has risen by more than 300 percent since the March 2009 lows, reaching a new high on Tuesday. Skeptics use this fact to suggest equities are overvalued. But the increase is as much the result of how much the market collapsed in 2008 as it reflects the rally off the bottom. An even deeper decline in 2008 would have resulted in an even larger rebound just to get to the same point. That’s simple math and it doesn’t reveal much. What really matters is the market valuation’s now. Compared to profits, stocks are not expensive, even after setting a new high.