With stocks continuing to just grind higher with practically no downside volatility, it's giving people more leisurely time to worry about when it's going to end (yesterday's 0.98% decline at the S&P 500's low felt like a crash compared to what we've grown used to). The melt-up likely bears the responsibility for the uptick in articles we've read and conversations we've been a part of recently about a new bubble in U.S. stocks. Yet, if this really is a bubble (we disagree), it's actually a fairly lackluster "bubble" compared to bull markets of the past. For example, since the beginning of 2009, the S&P 500 has returned about 12.5% on an annualized basis (before dividends), which is certainly good performance but it pales in comparison to the returns experienced in the 1980s and 1990s. From the beginning of 1982 until the stock market crash in late 1987, the S&P 500 appreciated at almost a 20% annualized clip and then from 1995 until 2000, which truly was a bubble, the index exploded for 26% returns per year on an annualized basis. So, while we most certainly believe that we are going to see the stock market fall once again eventually, we think it's wrong to assume it has to end in spectacular fashion from current levels.
- Andrew Adams
Yo, my definition of “bubble”: A thing where something appreciates in value and you don’t own it.
Shout to Andrew and the whole RayJay research team. Have a good weekend everyone.