Thursday’s FT declares “the end of a six-decade passion for equities”. Quite a claim.
Institutional investors, from pension funds to mutual funds sold directly to the public, have slashed holdings in the past decade. Stocks have not been so far out of favour for half a century. Many declare the “cult of the equity” dead.
The story may evoke a feeling of déjà vu for some. Especially those who read the August 13, 1979 edition of BusinessWeek, which famously also announced ‘the death of equities’.
Admittedly, it took another couple of years for the bear market to end, but what followed was one of the biggest bull markets in history.
This is the S&P 500 index over the next couple of decades.
But it also works the other way. When the markets are booming, it’s hard to imagine them doing anything else. David Elias’ book predicting the Dow could reach 40,000 was published in 1999, and Glassman and Hasset’s book a year later. Chart courtesy of analyst Chris Puplava, writing on Financial Sense:
Puplava has an interesting theory to explain what’s going on:
What investors must remember is that secular bull market tops are formed at a time when everything couldn’t be better or life brighter. This was the backdrop of the 1929 secular bull market top in which the U.S. industrial giant was firing on all cylinders; or the 1969 secular bull market top in which nothing seemed impossible as the U.S. put the first man on the moon; or the 2000 secular bull market top when we entered a supposed new era of technology and permanent growth. Conversely, when things look like they couldn’t get any worse and that the whole world is going to end, new secular bull markets begin to form.
So, is the FT story a contrarian indicator? Could another equities bull run be in the making?
Some readers asked to see S&P500 total returns index (which includes dividend reinvestment). The data from Bloomberg only goes back to early 1988, but here it is: