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Happy 5th Anniversary Post Crash Recovery

long-term-trading-range

As I look back at the blog posts from the 2008 crash and the time leading up to March 9th, 2009, I see some interesting things – it was clear now that fear was pervasive among the investment community. The liquidity-driven crash (or more appropriately, the lack of global liquidity that was caused by the failure of Lehman Brothers) had otherwise smart investors cashing out at the bottom because they could no longer take the pain of the market grinding lower day after day.

However, on March 10, 2009, I wrote a blog entry entitled The Market Is Putting In a Sustainable Bottom [you can click the hyperlink to check it out if you’d like]. I gave you several reasons why I believed the market had stopped going down and that we were moving to an all-in position on equities. This was contrary to what many people were still hearing from the folks on TV or from other investment managers, but we were resolute in our belief that we had hit a low-risk entry point so we took all of our clients to their maximum equity exposure.

For investors who rode out the drop without casing out and have ridden the market back up, they have clearly been winners. For those folks that listened to the pundits on TV telling them to sell and go to cash after the market had already fallen and who missed out on much of the recovery, they are the ones who are still feeling the impact of the crash.

Five years is a long stretch for a bull run higher without a significant pullback. If you look at things from a valuation perspective, we are near the levels where the market peaked in 2007:

shiller-pe-2014-03-10

But, just because the market peaked near here before does not mean we are due for another crash. We certainly could sustain a pullback – its pretty unprecedented to go as long as we have without a trip to the 200-day moving average. You can see on the graph below that November 2012 was the last pullback to that level.

200-day

However, corporate earnings are projected to continue to grow and US GDP is likely continue to be in slow growth mode – which means the Federal Reserve will keep interest rates low. Growing earnings and low interest rates have historically been positive to stock prices, and since that trend is clearly in charge, we will continue to be fully invested until the market shows us otherwise.


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Mark