You wake from a long sleep to see it's the "golden hour," that pleasant time of day cherished by cinematographers when the sunlight is especially soft and warm. The thing is, this inviting glow means it could either be an hour after sunrise or shortly before twilight, offering no immediate clue whether it's early or late.
This is about where investors find themselves as they open their eyes to 2017.
The stock market's liftoff out of an 18-month range to a new high in July—followed by the forceful post-election rally and related surge in investor, consumer and business confidence— have some optimists declaring another "Morning in America" moment. Invocations of Donald Trump as Reagan, heralding a new Golden Age for capitalism, are in the air. And plenty of folks long-skeptical of the economy and markets are talking and acting as if this is the start of something big for stocks.
Yet the nagging reality is this: Stocks are up 230 percent since March 2009. The S&P 500 has had a positive total return for eight straight calendar years; it's only had a streak as long as nine once before (1991-'99). And whatever the market's long sideways convalescence did to restore its energy, it did nothing to make equities appear attractively valued.
Source: Leuthold Group
To meld these perspectives, perhaps the recent rally is indeed a genuine recognition of a quickening of global growth and the chance for some business-friendly Trump policies, which could pull plenty more holdouts onto the bullish bandwagon.
But this would likely lead to an ultimate culmination of the bull market—a phase when the public gets excited about the market, the economy edges toward overheating and stock valuations get stretched a bit too high, inviting the next downturn.
Leuthold Group chief investment officer Doug Ramsey was bearish heading into the punishing global market correction that got rolling a year ago, believing it could snowball into a true cyclical bear market that took U.S. stocks down more than 20 percent. When the market rebounded strongly before getting there and turned his firm's long-running trend indicators positive, he saw renewed life in the bull market.
But only to a point: "The correction was deep enough to clear the decks for a final bull market leg that finally lures the public in a big way," he says. "But I somehow just can't accept that a new three- to four-year upswing would follow a mere 14 percent S&P 500 correction that occurred with unemployment at just 5 percent."
Most studies of past periods when a market has run up to a new high after a long time spent trapped in a range imply further upside for stocks now. Bespoke Investment Group looked at all times during past bull markets when the S&P 500 had failed to make a new high for at least six months. The median gain a year later was 17 percent, and median appreciation to the end of prior bull markets was 42 percent. Since the S&P 500 recently escaped its long range in July, it's up 5 percent.
The veteran investor and advisor who has come to be known as the "Mystery Broker" since I began to cite his views in Barron's several years ago has been generally bullish since the 2009 market low after having turned negative in 2007. His current take is also upbeat – but he hears the clock ticking.
About three weeks ago, he wrote in an email: