Have stock markets hit the bottom yet?

Markets tend to meander in long-term cycles with valuations moving from extremely high to extremely low. So have we got to 'really low' yet?

"Stocks always go up over the long term" is one of the oldest investment mantras in the book. But the long term can end up being very long indeed. The FTSE 100 fell by 28% in the decade to the end of last year. The trouble was that, late last century, investors failed to "buy low"; indeed, they bought at record valuations. And "valuations, rather than macroeconomic conditions or the progress of corporate profits, are the core determinant of equity-market returns", says Tim Bond of Barclays Capital.

Markets tend to meander in long-term cycles with valuations moving from extremely high to extremely low. These valuation up-and-down cycles are known as secular, or primary, bull and bear markets. These long-term bulls and bears typically last around 15 years or so. In the US, which tends to set the tone for world stocks, the S&P 500's p/e went from dirt-cheap single digits all the way to a record 44 in 2000. The long-term average is 15. In the secular bear markets, stocks fall or drift sideways overall (but often post major rallies and setbacks in the process) as earnings gradually catch up with valuations. Witness the 1966-82 bear, which managed to post some spectacular market rallies, going beyond the 1966 level as valuations continued to slide, interrupted by occasional upticks, to single digits. Overall, however, stocks went nowhere (and were sharply down after inflation).

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.