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Searching to explain the stock and bond markets' surprising ups and downs recently, some money managers think they have an answer. They believe we are suffering the effects of something called a "secular bear market." ………
Stocks were in a long-running, or secular, bull phase from 1982 until early 2000, when the market bubble popped. During that period, stocks occasionally did slump, and they even crashed in 1987, but they mostly rose. The Dow Jones Industrial Average put on 15.9% a year, on average, double the mean of 7.6% a year since it was created in 1896.………..
After such a long period of strength in the economy and in the stock market, the thinking goes, there is a risk of a lengthy period of softness -- a secular bear. From 1966 through 1981, a time of high oil prices and world tensions that followed years of stock strength, the Dow Jones industrials averaged almost no gain at all. They rose less than 1% a year on average, and that was more than eaten up by inflation.
Some money managers fear we are in the midst of another such prolonged weak period. "Returns this decade have been and will continue to be below levels we enjoyed in the '90s and even the '80s, meaning that they will be in single digits on average," says Russ Koesterich, senior portfolio manager at Barclays Global Investors in San Francisco. "They are going to feel disappointing compared to what people grew up with over the past 20 years."................
That kind of concern could be seen in the market last week, as the Dow Jones industrials broke a two-week winning streak and fell 81.58 points, or 0.8%, to 10460.97, following a drop of 92.52 points, or 0.9%, on Friday.
Still, plenty of investors remain optimistic and think last week's troubles are a passing storm. "The fundamentals I am seeing in the stock market aren't the kinds of things I would expect to see in a secular bear market," says Janna Sampson, director of portfolio management at OakBrook Investments in Lisle, Ill., who thinks the talk of a secular bear is wrong-headed………………………….
Until a few days ago, stock investors had welcomed the bond market's unusual behavior, as the yield of the 10-year Treasury note fell below 4%, a level it rarely crosses. It was taken as a sign that inflation was under control and that the Federal Reserve would be able to stop raising its target interest rates soon.
But as the week progressed, fears spread that the continuing plunge in the 10-year yield was a sign of doubt about economic strength and about the stock market's prospects.….... Despite the stock rally that began in April, major indexes still are showing losses for the year, with the industrial average down 3%, the Standard & Poor's 500-stock index off 1.3% and the Nasdaq Composite Index declining 4.8%. Their inability to push into positive territory since March reflects the skepticism.
François Trahan, chief investment strategist at Bear Stearns, last week began warning that the S&P 500 could fall to 1150 by year's end…….. He now believes the gains won't come until next year.
Part of the problem is that, despite the widespread hope for an end to the Fed rate increases, some investors expect the central bank to disappoint markets by continuing to raise its target rates for some months to come. Inflation pressures remain: Oil prices rose sharply last week, pushing above $55 a barrel again. With consumer-price inflation running at more than 3% and the Fed's target short-term rate currently at 3%, the real, inflation-adjusted Fed rate remains negative, below the level many economists expect the Fed to seek. see attached for full article
Searching to explain the stock and bond markets' surprising ups and downs recently, some money managers think they have an answer. They believe we are suffering the effects of something called a "secular bear market." ………
Stocks were in a long-running, or secular, bull phase from 1982 until early 2000, when the market bubble popped. During that period, stocks occasionally did slump, and they even crashed in 1987, but they mostly rose. The Dow Jones Industrial Average put on 15.9% a year, on average, double the mean of 7.6% a year since it was created in 1896.………..
After such a long period of strength in the economy and in the stock market, the thinking goes, there is a risk of a lengthy period of softness -- a secular bear. From 1966 through 1981, a time of high oil prices and world tensions that followed years of stock strength, the Dow Jones industrials averaged almost no gain at all. They rose less than 1% a year on average, and that was more than eaten up by inflation.
Some money managers fear we are in the midst of another such prolonged weak period. "Returns this decade have been and will continue to be below levels we enjoyed in the '90s and even the '80s, meaning that they will be in single digits on average," says Russ Koesterich, senior portfolio manager at Barclays Global Investors in San Francisco. "They are going to feel disappointing compared to what people grew up with over the past 20 years."................
That kind of concern could be seen in the market last week, as the Dow Jones industrials broke a two-week winning streak and fell 81.58 points, or 0.8%, to 10460.97, following a drop of 92.52 points, or 0.9%, on Friday.
Still, plenty of investors remain optimistic and think last week's troubles are a passing storm. "The fundamentals I am seeing in the stock market aren't the kinds of things I would expect to see in a secular bear market," says Janna Sampson, director of portfolio management at OakBrook Investments in Lisle, Ill., who thinks the talk of a secular bear is wrong-headed………………………….
Until a few days ago, stock investors had welcomed the bond market's unusual behavior, as the yield of the 10-year Treasury note fell below 4%, a level it rarely crosses. It was taken as a sign that inflation was under control and that the Federal Reserve would be able to stop raising its target interest rates soon.
But as the week progressed, fears spread that the continuing plunge in the 10-year yield was a sign of doubt about economic strength and about the stock market's prospects.….... Despite the stock rally that began in April, major indexes still are showing losses for the year, with the industrial average down 3%, the Standard & Poor's 500-stock index off 1.3% and the Nasdaq Composite Index declining 4.8%. Their inability to push into positive territory since March reflects the skepticism.
François Trahan, chief investment strategist at Bear Stearns, last week began warning that the S&P 500 could fall to 1150 by year's end…….. He now believes the gains won't come until next year.
Part of the problem is that, despite the widespread hope for an end to the Fed rate increases, some investors expect the central bank to disappoint markets by continuing to raise its target rates for some months to come. Inflation pressures remain: Oil prices rose sharply last week, pushing above $55 a barrel again. With consumer-price inflation running at more than 3% and the Fed's target short-term rate currently at 3%, the real, inflation-adjusted Fed rate remains negative, below the level many economists expect the Fed to seek. see attached for full article
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