Bear Market Hibernation End is Nearing
The S&P 500 continues to be overvalued and has become more so over the last 6 months. Based on 7 different valuation metrics, future 10 year compound annual returns are likely to be only about 6% vs. 9%-10% historically. While we are not expecting an imminent bear market, the specter of FED rate increases likely does indicate the beginning of the end of the current bull, as 12 out of 14 S&P 500 declines of at least 15% over the last 60 years have occurred within 3 years of FED tightening.
Q2 2014 Investment Letter
The S&P 500 is now more than 5 years into the bull market that started on March 9, 2009 Historically, buying the S&P 500 at high valuations and low dividend yields has resulted in sub-par investment returns on average The S&P 500 is currently overvalued based on 7 different metrics, implying that future long-term returns are likely to be disappointing Overvaluation is not limited to the S&P 500, as a number of recent technology valuations are reminiscent of the late 1990s tech bubble We believe a bear market within the next few years is likely