The Dow Jones Industrial Average has taken less time to recover from the worst bear market since the 1930s than it did from the bursting of the Internet bubble at the start of this century. It has taken the Dow 65 months to regain its closing high of 14,165.53 set on October 9, 2007, and has doubled in the four years since it hit its bear market low, riding a wave of liquidity from loose monetary policy around the world.
Yet, as Bloomberg notes:
[The Dow’s] valuation remains 20% less than the price-earnings ratio at the previous peak and 15% below its 20-year average.
The Dow’s rally is a month shy of matching the average length of a bull market over the past half century. The questions now for investors–beyond the immediate one of can the Tuesday morning surge hold to the close of trading–are, are the bulls right that the valuations mean stocks still have room to keep rallying, or are the bears correct they are showing a lack of confidence in earnings growth and concern over central banks’ willingness to continue stimulating economies, and most particularly the U.S. Fed which has pushed $2.3 trillion into the U.S. economy? And if it is the former, will the money investors will need to sustain their buying come from bonds or cash?