What to Make of This Unloved Bull Market

If you had fallen asleep in March 2009 and woken up just now, you might have been astonished to find the S&P 500 Index at more than four times its value. And yet, as someone who has worked in this business for more than 30 years, I cannot recall a bull market so unloved. Each successive record it breaks seems to be met by many with fear rather than embrace, followed by the crystal-ball question: “When will it end?”

With memories of the financial crisis still fresh, investors are leery. The 17-month period between October 2007 and March 2009 saw the greatest destruction of wealth in modern times, resulting in the erasure of more than half of the stock market’s value. Who can blame investors today who are hard-wired to brace for the worst?

A crystal ball, I’m sorry to say, is something I cannot offer them. But without meaning to sound presumptuous, I believe I can suggest the next best thing: a consistent, long-term investment plan. In 2009, hordes of investors abandoned their plans and simply got out of the market, only to sit out one of the longest bull runs in history.

There’s nothing novel about the proposition of sticking to a long-term plan. We’ve been advocating it for years at OppenheimerFunds, and well before eight-year-long bull markets became the fashionable norm. Investors who stuck to such a plan have likely benefited from this environment, which has favored higher risk/reward potential — or what we call “risk assets” — despite episodic volatility. 

We expect this trend to continue, though we are mindful of the more mature stage the financial markets have entered in the current cycle. Stocks are more expensive. Central banks are expected to tighten monetary policy by hiking interest rates. These are developments that should prompt investment managers like us to pause, make empirical observations on where the markets are headed, and offer solutions to our diverse clients.

The Ride Doesn’t Appear to Be Over Yet

Our chief investment officer, Krishna Memani, explains that while we are getting closer to the end of the market cycle, we’re not there yet. He points out that this cycle — just like any other — will end when stock valuations reach preposterously high levels, when the U.S. Federal Reserve tightens monetary policy aggressively with steep interest-rate hikes, and/or when the U.S. economy begins to sputter. We do not see any of these indicators beginning to surface and believe that the backdrop for risk assets remains sound. The world’s major economies are expanding in unison. Global growth no longer requires emergency monetary policy support. Inflation remains low. And we believe that growth in the emerging markets is likely to be even stronger and more widespread than it is in the developed world.

Global equities — especially in the emerging-market and international categories — remain our asset class of choice. In our view, market corrections or bouts of turbulence in the coming year could actually represent buying opportunities.

With that said, healthy skepticism is always preferable to dangerous complacency — whatever the environment. As the head of a business, I try to entrench that view in the culture of our firm and have it translated to the everyday activities we undertake, from the discipline with which we manage risks to the prudence we try to exercise when staking out new positions in the financial markets.

So what of this poor, unloved bull? I don’t believe he has overstayed his welcome, but I’ll also continue to keep a close eye on what he does next. What should investors do if the markets goes south? The best course of action might be to simply do nothing—and stick to your long-term investment plan.