This Time is Different

2016 has started off with a bang.  The S&P 500 is off more than 7% in January, one of the worst calendar-year starts in history.  That has everyone wondering if 2016 will be the year of the next big market crash. Though Reinhart and Rogoff might argue otherwise — I think this time may actually be different.

First, market valuations are not as stretched as they were going into the tech bubble or financial crisis.  The S&P 500 is trading somewhere around 20x.  And while that’s not low, it’s certainly nowhere near the 50x and 70x multiples we saw in 2000 and 2007.

Second, economic conditions, at least in the US, aren’t deteriorating. Job creation and real income continue to improve.  So long as that’s the case, consumption should help the US economy grind forward at the same sluggish rate it has since 2009.

Though there’s certainly always a wall of worry for investors to climb, two big catalysts behind major market crashes simply aren’t flashing red as of yet.  That leads me to believe that 2016 will not be the year of the next big one.

You can read more in BCM’s latest Letter to Investors, “One Burning Question.”

Victor K. Lai, CFA

This blog is for informational purposes only. Nothing on this blog represents advice. Investing is inherently risky and involves the potential for loss.