There’s no question the bull market in stocks that began in 2009 is long in the tooth by nearly any measure. As a result, plenty of investors are edging toward the exits already, with steady outflows from mutual funds, as I reported last week.
But history says this early exit could be a big mistake, leaving just before the biggest potential gains may be earned.
The current bull market is now the 2nd-longest in history at 91 months in length and a gain of 223% for the S&P 500!
It’s also the 3rd-best bull in terms of price performance, and it’s only a few percentage points away from beating out the 1980s’ bull-market gain of 228.8%.
But stocks would have to more than double from here to match the granddaddy of all bull-market gains: 582% in the 1990s!
|“History suggests that very big gains are most likely in store for stocks.”|
I know what you’re thinking: Fat chance of the S&P 500 doubling yet again with current valuations already stretched. But history suggests that very big gains are most likely in store for stocks.
Analysts at Bank of America studied every bull-market peak since 1937, and their research shows that missing out on the last leg of a bull market is a costly mistake. Their findings:
If you skip the final year of a bull-market advance you’re likely to miss out on 21% gains – that accounts for nearly one-fifth of the entire bull-market profit on average.
Jump ship two years before the top and you’re likely to miss out on a median gain of more than 40%! That’s a lot of money left on the table.
Consider this: Investors who left the stock market party one year prior to the 1987 peak, would have missed a 40% gain over the next 12 months.
You would have STILL come out ahead, even after the October 1987 crash!
And if you think valuations are expensive today, how about the dot.com era of the late-1990s when internet stocks were valued based on clicks?
Even so, if you bailed out of stocks in mid-1997, you would have missed a 70% gain in the S&P 500 over the next three years!
Bottom line: It’s human nature to be skeptical, and after a bull-market run that’s lasted nearly eight years already, it’s perfectly normal to wonder if the music is about to stop.
But pessimism seems rampant right now. Money managers are holding the highest cash levels in nearly 15 years, and retail investor sentiment is close to the lowest levels at any time since this bull market began in 2009 (see chart above).
This is NOT the stuff bull-market tops are typically made of.
History clearly shows that the last leg up in most bull markets can be explosive with spectacular gains for investors who sit tight!