The current stock market bull run, share prices generally continuing to rise, is now the longest on record, having started with the beginning of the recovery from the international financial crisis in 2009. Jitters brought on by a significant correction between the summer of 2018 and the end of last year, proved premature as markets recovered strongly over 2019.
The FTSE 100 has, with a return of over 13%, recorded its strongest year since the Brexit referendum. And in Europe and on Wall Street, the major benchmark indices have, unencumbered by Brexit uncertainty, performed even better. For those investing online, the question will now be when might be the moment to cash in or are there still new gains to be banked over the course of 2020?
Is there anything we can learn from looking back in time? After all, financial markets tend to be cyclical in nature. The last day of trading in 1999 saw major stock markets hit their highest levels of the whole decade that was just about to end. This year, those heights won’t be set on the last day of the year, following a slight drop yesterday from new record highs set at the end of last week. But the pattern is close enough to be worth consideration.
Of course, those 1999 highs preceded a severe bear market that included the bursting of the dotcom, telecom and media bubble. By March 2003, the FTSE 100 had lost almost half the value achieved on the last day of trading in 1999. Following a recovery over the next four years or so, it again lost around half its value when the international financial crisis hit. So should we be concerned that a repeat could be on the cards?
Nobody can say for sure how stock markets will behave over 2020 and the following years. But there are some important indicators that suggest we will not see a repeat of the downturn that followed the turn-of-the-millennium-party twenty years ago now.
In 1999, the FTSE All-Share index was yielding just 2.2%, which is not very good. And the average company valuation was a multiple of 27 on corporate earnings, which is very high. Today’s scenario is much healthier. The average yield from a FTSE All-Share company is 4.2% and the average price to earnings ratio a multiple of 17. Without dividend income, the FTSE 100 has seen capital values rise by only around 10% over 20 years, which is really quite modest.
Hopefully that all means that we are not due a repeat of the aftermath of 1999’s market heights. And the current record bull market still has some way to run, starting with further gains over 2020.