We would only ever reproduce this phrase with a massive, neon warning sign above it.
“It’s different this time”, as many people have found to their cost, one of the most noxious phrases in markets. But different this time is just what a rash of research is claiming of this (recently renewed) bull market.
Bespoke Investment Group kicked off the dewy-eyed number crunching this week, with a post proclaiming this to be a bull market “unlike any other.” This run is the only one, going back to 1942, which has been accompanied by a large contraction in p/e ratios, Bespoke explain. At its start, back in October 2002, multiples in the S&P stood at 29.06 times, against the current valuation of 17.84 times.
The venerable types at McKinsey are also getting in on the act. One similarity between the run-up to the current peak, and that in 2000, they note, is that much of the growth in values was concentrated in certain sectors: energy, utilities and materials along with financial stocks in 2007 and of course, TMT last time round.
But there the parallels end, the consultants argue. The market earnings multiple is about 35 per cent lower than in 2000 - and in line with McKinsey’s model. “In other words, the current ration is consistent with current levels of interest rates, inflation and long-term growth”, they say, a state of affairs that was not the case amid the gaga optimism surrounding dotcom.
And the ratio of total profits to GDP soared last year, to an unprecedented level, suggesting that the stock market peak may have been driven by exceptionally strong earnings, albeit aided by a weakening dollar.
So sustainability of earnings growth rather than hyper valuations is the weak point in this bull market - leaving it dependent on energy and materials - which has benefited from higher oil and gas prices, and finance, driven by low interest rates and loose credit. The latter has already shown its propensity to jam shut with alarming speed.
So perhaps, the main difference between this bull market and all the others is just that it hasn’t ended….yet. Small comfort.
