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Will the S&P 500 peak this year, and then be lower for next couple years?

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Discussion Starter #1
The recent GameStop and related insane speculations are pretty amusing. But it's left me wondering if these are signs of total excess speculation/mania, which marks the "end of a bull market".

I'm thinking about myself for example. For many years I've been very restrained in my stock investments. And yet, over the last few weeks, I bought totally speculative -- and greedy -- positions in Bombardier and American Airlines purely because I thought all the excess liquidity could make them go up. The fundamentals don't matter.

My own behaviour (like many other speculators these days) makes me think there is off-the-rails risk taking. Historically this usually aligns with market peaks, or close to the peak.

Curious what people think. And here's a poll, asking if you think 2021 will be the S&P 500 peak.

I voted Yes, I think this year will be the market top. That doesn't mean I expect a crash. I just think it will be a few years before we get a new peak, after a breather.

Despite voting Yes, I am of course keeping my stock positions and will even be buying more stocks as I have the cash. A "peak" is just a short term thing, and I'm sure we'll get new peaks ... but I think we might have to wait a couple years.
 

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Not that my analysis and predictions are worth much... I'm in the secular bull camp due to all the fiscal and monetary stimulus. Large caps will come out stronger post pandemic and while some businesses won't survive, there will be enough access to for new businesses to emerge. However, it's not a leap to suggest there's a good chance for a correction 15-20% correction in the next few months to reduce some of the froth and pretty strange stuff happening and we'll have a new high by end of year.
Longer term, we're probably in for a reckoning due to all the debt everywhere and rates start to rise. But that's for the latter part of this decade.
 

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Discussion Starter #3
However, it's not a leap to suggest there's a good chance for a correction 15-20% correction in the next few months to reduce some of the froth and pretty strange stuff happening and we'll have a new high by end of year.
Ah, interesting. So you think there could be a correction, but you think the market would still fully rebound within the same year?
 

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Along the lines of what Milhouse just said. I think we are in a secular bull market that will last for some years yet, but we will have market corrections of 10-19% (as a correction is actually defined) every year or two potentially. There will be sector rotations occurring during this time as well, and some of them could be significantly severe, but since I don't know which ones, I will continue to spread the love with a broad base.

Moderate inflation will be a fiscal goal, likely over 2% but not that much over....as the US Fed has already articulated it plans to do. It will be needed to inflate away all that debt. To me, it implies continued asset inflation in both equity and real markets. I don't know if the indices will be higher at the end of this year than they are now, but it does not matter. Stay invested.

Added: I expect a ~10% type correction imminently... within months.
 

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Discussion Starter #5
For those of you saying a correction would be brief and new highs will continue to occur: are you at all concerned about the length of this bull market?

This is now a 12 year bull market (of consistently higher highs) with no correction lasting more than a year. Historically speaking, this is one of the longest bull markets in world history.

At some point, that bull market has to end. I'm not saying it needs a crash or horrendous decline, but at some point there will be a stretch or 2-3 years where prices don't advance. I'm just guessing that the time is ripe for that, which is why I think 2021 is the peak and we might now be in for that 2-3 year pause.

To clarify: I am continuing to buy stocks, I don't take this timing stuff seriously.
 

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To my analysis, S&P 500 is not in any danger zone.

NASDAQ though is due for a correction.

In both cases, nothing that would last.
 

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James, I am not concerned about the length of this bull market as long as the grind to continuing new highs is orderly with 10% type corrections thrown in for good measure. The NASDAQ is an issue but it is not the broad market.

Fiscal policy in the developed world is pretty much aligned everywhere to promote asset inflation at higher than recent historical rates. It doesn't necessarily mean higher CPI goods and services inflation, at least not materially.
 

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I'm thinking about myself for example. For many years I've been very restrained in my stock investments. And yet, over the last few weeks, I bought totally speculative -- and greedy -- positions in Bombardier and American Airlines purely because I thought all the excess liquidity could make them go up. The fundamentals don't matter.

My own behaviour (like many other speculators these days) makes me think there is off-the-rails risk taking. Historically this usually aligns with market peaks, or close to the peak.
The J4B Indicator is flashing conflicting signals.
The speculative buys suggest a top, but the wall of worry suggests more room to run.

Hmmm. Maybe it's a Goldilocks market.
 

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Curious what you mean by last. You mean, a correction wouldn't last more than a couple months perhaps?
Exactly. For NASDAQ, a correction like what happened in September 2020, but which would take 4-6 months to recover instead of 3.

S&P 500 could just slow its growth and/or have small corrections through its volatility.

In the next years, I don't expect big crashed, just a series of corrections, like usual.

I agree with @AltaRed
 

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are you at all concerned about the length of this bull market?
I think some people are biased by their experience, which makes them live in fear.

Other than the Great Depression of the 1930s, the crashes of 2000 and 2008 were the worst of the past 100 years. Many lived both.

But should I remind you that from 1950 to 2000 (50 years), there was only one big crash comparable to 2000 & 2008 which was in 1973.

 

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Exactly. For NASDAQ, a correction like what happened in September 2020, but which would take 4-6 months to recover instead of 3.
One thing though. If NASDAQ goes on a bubble +30% this year, then yeah it would amplify the feeling of a drawdown once the bubble pops from its peak, as what happened in 2000.

Reminds me that 2000 wasn't a crash to me. It was the surge & pop of a bubble.
 

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Discussion Starter #14
Reminds me that 2000 wasn't a crash to me. It was the surge & pop of a bubble.
Sometimes it's hard to see that something is a bubble until after the fact.

For example, imagine that higher inflation forces interest rates up, and next year we're looking at 2% interest rates (forced by the bond market, whether or not the central banks want it). What do you think would happen to discount rate analyses, corporate borrowing costs, and the stock market?

Someone in 2023 could say: wow, we sure were stupid buying bubble equities at a Shiller PE of 34 (a level only seen before during the dot com bubble) and convincing ourselves that it was fine because interest rates were at zero.

The market P/E ratio shows a very sharp increase in the multiple, recently. The prices are rising, but earnings are not. Do the math yourself and calculate where the S&P 500 would be if the P/E multiple was back to 2019 levels. That would be a surprisingly large drop in the index.
 

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I have no ability to see into the future,

I do hope our dividend portfolios continue to provide our retirement income. Stock prices may very well drop. At best I suspect they will be volatile. I wouldn't want to have to be cashing in growth/non dividend payers to provide for living expenses if and when they do. I don't plan on selling anything.

Problem will be how to reinvest fixed income when GICs and Bonds currently yielding 3+% mature over next few years. With all the money printing, perhaps inflation rates will increase and real interest rates will keep pace. Anybody's guess really.

We live in turbulent times. Trying to predict them is probably a mugs game.
 

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Discussion Starter #16
I do hope our dividend portfolios continue to provide our retirement income. Stock prices may very well drop. At best I suspect they will be volatile. I wouldn't want to have to be cashing in growth/non dividend payers to provide for living expenses if and when they do. I don't plan on selling anything.
Actually, it makes no difference whether you extract cash from the portfolio by taking out the dividends, or routinely selling shares to raise cash. Same net effect of both methods, even with non-dividend payers. Provided they have the same total returns.

Admittedly it's easier with dividends. Automatic, and no risk of emotional market timing.

Also, if you're taking dividends but don't actually need the cash (maybe there's excess left after living expenses), make sure you put that cash back into equities.
 

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I personally don't think the bull market has really even started yet. We're at what, 5% higher than we were 12 months ago? All kinds of liquidity pumped into the market, unbelievably low interest rates, 10 months and counting of pent up demand for entertainment, travel, etc.

I do recognize the signs of caution - but these are due to the unbelievably rapid recovery from the March lows, rather than an overpriced market.

On that note - these are my thoughts on the market being overpriced or not. I look at the blue chip, dividend paying stocks. Lets take Royal Bank for example. At any time in history you should be expecting around a 4% yield with RY and the expectation of a yearly dividend increase. You could say the same for any large cap stock - CN, SU, etc. If these numbers are in line, how can you say the market is overvalued?

Sure there is speculation and bubbles within the broad market or even other indexes (tech stocks) but to say an index composed of stocks like the above mentioned that can maintain dividends and likely increase them is overpriced, I disagree.

This all is of course my uneducated opinion and is worth exactly what you paid for it.
 

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Sometimes it's hard to see that something is a bubble until after the fact.

For example, imagine that higher inflation forces interest rates up, and next year we're looking at 2% interest rates (forced by the bond market, whether or not the central banks want it). What do you think would happen to discount rate analyses, corporate borrowing costs, and the stock market?

Someone in 2023 could say: wow, we sure were stupid buying bubble equities at a Shiller PE of 34 (a level only seen before during the dot com bubble) and convincing ourselves that it was fine because interest rates were at zero.

The market P/E ratio shows a very sharp increase in the multiple, recently. The prices are rising, but earnings are not. Do the math yourself and calculate where the S&P 500 would be if the P/E multiple was back to 2019 levels. That would be a surprisingly large drop in the index.
Your question was if we believe the S&P 500 is about the peak and go lower in the next years, meaning it would then go into a bear market.

I don't believe it'll crash and I don't believe there will be a bear market.

Though I do believe US stocks are about to underperform (unless it goes into a bubble), which would be in respect to your point about the Shiller PE.
 

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Discussion Starter #19
We're at what, 5% higher than we were 12 months ago
The S&P 500 is 15% higher than a year ago, before the pandemic started. Was recently as much as 20% higher, see chart.

By this measure, I hope we get a pandemic or global disaster every year! What fun... sure is good for stocks.

21213
 

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The S&P 500 is 15% higher than a year ago, before the pandemic started. Was recently as much as 20% higher, see chart.

By this measure, I hope we get a pandemic or global disaster every year! What fun.

View attachment 21213
I have a bad habit of using the DJI when referring to "the market". On Feb 10, 2020 it was right around 29,000.

I see S&P at 3,3XX in February, which is about 10% below where we are right now.

As far as the "what fun - good for stocks" comment - The pandemic resulted in something like printing 20% of the total amount of money ever printed. I believe this ultimately is good for stocks. But really I have as much of an idea of whats going to happen as anyone else here.
 
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