We’re still in a bull market that we think has several more years to run.
Bull markets typically end one of two ways:
Economic slowdown which turns into a recession – the market will begin to price in the declining growth rate and the decline of earnings
The investment alternatives become compelling relative to stocks, which we currently don’t see with bonds. A Fed governor commented that with bond yields north of 4% on the 10-year (currently they are at ~2.4%) and the Fed’s Fund rate rise to 2%-2 1/2%, we would achieve “normalization”. If that happens, we think stocks would likely be 20% higher/have a P/E around 21 -22 – then the earnings yield would be not far from the bond yield. We think that’s still a couple years out.
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