Stock markets: we're a long way from 'revulsion' yet

The recent rally is just another in the long bear market that began in 2000. And we're still a long way from the 'revulsion against equities' needed to mark a true market bottom.

The current rally is another in the long bear market that began in 2000, says Russell Napier of CLSA. A new bull market is still out of the question; valuations did not fall low enough in March (see chart) and there was none of the "revulsion against equities" needed for a true market bottom. Nonetheless, investors should not bet on this recovery running out of steam yet. "The last rally lasted from 2002-2007 and this current one should last for a few years."

Valuations are crucial for determining very long-term returns, but they don't help determine turning points and rallies; investors looking at the still-high valuations after the dotcom shakeout were "wrong-footed by the rise of almost 90% in the Dow Jones Index from 2002-2007". Instead, it is inflation and deflation swings that determine rallies, Napier argues.

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