Stock markets around the world are highly priced relative to earnings. Some may even say we are in a bubble.

The problem with this thinking is that there have been calls that the market is over priced since late 2009. Every single year for the last 12 years, so called experts have come out saying that the markets are overpriced and a crash is coming.

In late 2009, the New Zealand stock market was valued at about 3,200. Today it sits at around 4 times that for a 400% 12 year return.

The S & P 500 (US market) was 1095. Today, that market also sits over four times higher.

Take a minute to let that digest. Since experts predicted a crash, the markets have gone up another 400%. These experts have missed out on a lot of returns if they practiced what they preached.

The funny thing is, would anyone be surprised if the markets crash? I don’t think so. Likewise, we shouldn’t be surprised if they continue to rise. That is the nature of stock markets. Sometimes they go up, sometimes they go down. Sometimes by a lot, sometimes not.

For every reason I can give you for stock markets to continue to rise I can probably think or reasons for markets to crash.

Possible reasons for stock markets to continue to climb

• No where else to invest. Houses are ridiculously expensive. Interest rates on term deposits, savings and bonds are low.

• Unemployment to remain low

• Interest rates to remain low

• Slow reopening of international borders meaning increased spending and decreased emigration.

• This leads in to more productivity growth

• Earnings growth for 2021 for many companies should look good compared to Covid hit 2020.

• Investor sentiment. People are getting bullish and speculative, pushing prices up.

Possible reasons for stock markets to crash

• Large increase in inflation and interest rates, pushing investors to more conservative options.

• Covid to re enter and remain stubborn

• Unemployment to rise

• Very high valuations of certain companies

• It’s been a long time

• Investor sentiment (emotion based investing) can pop at any time.

• Introduction of capital gains tax, or an increase in tax rate, or insert any other government policy that could affect returns.

These lists are by no means exhaustive but it shows there are equally compelling reasons for a drawdown in stock prices as there are an increase in stock prices.

Stock market returns are not obvious

If there is a crash, it will be easy to point to any one of these reasons, or another reason, and say it was obvious.

“Prices are so expensive, of course a crash was coming”.

But then you would be just like those experts in 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021.

You didn’t see it coming. It will be obvious when it happens why it happened. But not before.

The point is all these reasons are obvious now. Both for AND against.

Yet only one or two will be obvious in hindsight.

Hindsight is a wonderful thing my friends.

Don’t think you were some kind of genius who looks backwards at how obvious things were. That will just lead to you thinking you are a market timing investing genius and getting overconfident.

The stock market will always find a way to humble you.

Time in the market is your best friend.

If you need an investment plan or recommendations , then get in touch today.

The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here