Are We in a Secular Bull Market and Do Valuations Matter?

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The following is a summary of our recent interview with David Rosenberg, which can be accessed on our site here or on iTunes here.

Last week, Jeffrey Saut, Chief Investment Strategist at Raymond James, argued on our show that markets are in the middle of a secular bull with at least 6 to 8 years more to go (see Jeffrey Saut Argues Bull Market Has Years Left to Run).

However, David Rosenberg at Gluskin Sheff, is less optimistic, saying that stocks are already quite expensive and that there are plenty of signs the economy is in the latter stages of its current growth cycle. Here's what he told listeners last week...

Pullback Is Likely Here

“Even if (Saut’s) right, the reality is that we’re probably still going to be peppered with a lot of volatility,” Rosenberg said.

In reality, we’ve gone a long time without seeing any pullback. That is not normal, Rosenberg stated. Outside of 1995, which marked the “Dot Com” inflection point, if we look at 80 years worth of data, we observe that we always have at least a 5 percent correction in a given year.

“To sit back and pontificate about a secular bull market obscures the fact that … we have a market right now that is breathing a lot of fumes and is really based a lot on chart action and momentum and on fund flows,” Rosenberg said.

A Question of Valuation

Valuations remain a huge constraint, Rosenberg stated.

“Valuations never really matter until they do,” he said. “It’s not a timing device, but at these multiples … they’re the highest they’ve been, no matter how you measure them, in at least 15 years. That at the least imposes a constraint on future returns.”

The most dangerous thing investors could do right now is extrapolate what’s happened recently out into the future, Rosenberg stated.

It’s hard to know what the event will be that will cause the correction, he added. Expecting to time the market precisely or on a consistent basis is impossible.

Correction Triggers

“As my mentor, Bob Farrell, famously said in rule No. 4 of his 10 market rules to remember … ‘exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways,’” he said.

Right now, we’re in such a market. There are many unknowns that may trigger a sell-off, including the Fed becoming more hawkish or the possibility of a trade war unfolding.

It could simply be that the hope and expectation that’s been priced into the market doesn’t pan out, Rosenberg stated. The longer it takes the government to institute any of Trump’s proposals, the more likely we’ll see ramifications for the markets.

“If this drags on into 2018, something tells me that Mr. Market, which has given the White House the benefit of the doubt, is going to start to lose its patience,” he said.

Listen to this full interview with David Rosenberg on our website by clicking here. Become a subscriber and gain full access to our premium weekday interviews with leading guest experts by clicking here.

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