Should we have foreseen this bull market?

Economists correctly predicted most aspects of how the post-2008 market would play out, but they missed a big one.

John Rekenthaler 12 October, 2018 | 5:00PM

History may not regard us kindly.

It does not speak highly of the perspicacity of post-World War II investors. In 1949, the S&P 500 traded at 6 times earnings, entering an economic boom. Labour was cheap, new technologies would spark productivity gains, and the United States had the capital. The stock market was poised to surge. Few saw the opportunity. The S&P 500 rose 353% for the decade of the 1950s, but only 5% of Americans owned equities.

Such is how the decade is remembered. Those investing at the time, however, would tell a different story. Inflation had averaged an annualized 10.3% for the three years prior to 1949, gross domestic product shrank for the year, and unemployment pushed 8%. Stagflation! Perhaps a price/earnings ratio of 6 was too conservative, but there were good reasons, besides the memory of the past 20 years of stock-market woes, for being wary in 1950.

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John Rekenthaler

John Rekenthaler  John Rekenthaler is Vice President of Research for Morningstar.

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