After the market volatility last week many are beginning to wonder if the bull market is over, or just taking a break. Nick Maggiulli, analytics manager at Ritzholtz Wealth Management, offered his prediction for the market based on the fundamental concept of economics. Basically, when the average investor allocation to stocks is high (greater than 70%), returns for the following 10 years tend to be low, and investors should buy bonds. Oppositely, when average investor allocation to stocks is low (less than 50%), the following 10 year returns tend to be high. Therefore, investors should then sell their bonds and buy stocks. Since 1987, investing in this manner would have turned $1 into $43, versus just $24 for the buy-and-hold crowd. And where is the indicator now? According to the model, investors should have sold stocks last December when allocations crossed the 70% threshold. Since then, allocations have remained in the 65% - 73% range, nowhere near the 50% threshold for buying again.
Is the Bull Market Over?
| October 15, 2018