Today's Bull Versus The 1990s

The advance since March 2009 has just surpassed the bull market of 1990-1998 to become the second longest bull of all time, and it will move into the top spot if it can survive until next March 15th (the “Ides of March”). The current record holder is the 1921-1929 bull, which expired just a few days following its eighth birthday.

Intrigued by this market’s similarities with the 1990s, we updated a study from early 2014 in which we “map” current readings on six key U.S. valuation ratios to the months when those readings were first matched or exceeded during the latter half of that great bull market decade.

The exercise reinforces a point we’ve made for a while: Among the six major measures examined here, the stock market looks least overvalued on the basis of the S&P 500 5-Yr. Normalized P/E. During the 1990s, the S&P 500 first reached that threshold in May 1995, yet the bull market would rage on for almost another five years. [It’s worth pointing out, though, that our current 5-Yr. Normalized EPS estimate is predicated on an average net profit margin that’s more than two points higher than in 1995 (7.7% versus 5.5%).]

Current readings on the remaining five measures all correspond to more advanced phases of the 1990s bull, with the current Price/Sales ratio of 1.89x the most extreme with a “time analog” of November 1998. Taking a median of all six valuation measures, today’s valuation level equates on a “temporal” basis to August 1997 (when the S&P 500 traded near the 900 level). Bulls will be quick to point out the S&P 500 rose another 70% before peaking out at 1527 in March 2000. While we are not forecasting a late-cycle stock market “melt up,” this study suggests there’s still room for that to occur.

© Leuthold Weeden

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