As soon as broad stock market indexes surpassed previous peaks, investors wondered whether reversals were imminent. Based on various conditions in past cycles, Bob Landaas says, the bull market still has momentum. Here is a transcript of his Money Talk Video:

A lot of folks are asking us, now with the stock market at record levels, “Bob, shouldn’t we take some money off the table? Bob, I’m worried about the future, should we take some profit?”

I’m not so sure you want to do that right away.

There are a lot of differences between this current market cycle and past market peaks.

If you consider that in past market peaks, we had over 60% of the investing public bullish. Now it’s only 38 percent.

Past market peaks, the Fed had already started raising interest rates. And as we know, they’re not going to raise rates until the end of 2015 – at the earliest.

In past market peaks, the P/E ratio was over 18. We’re barely at 15 right now.  A lot of differences between past market peaks and the current cycle.

It’s interesting to note that it’s interest rates and earnings that drive stock prices. We know that interest rates aren’t going up anytime soon. Inflation is barely measurable.

When it comes to profit, we’re looking at a 9 percent increase in profits, according to Bloomberg, for the S&P 500 companies. And they’re already anticipating an 11 percent increase next year. If they come anywhere close to that, I think the market has some legs, and we’re perhaps in the fifth or sixth inning of this market cycle.

When you look at the retail investor, they just started getting into this market, as measured by flows into mutual funds. Up until December, for the last almost five years, net new money has been going into bond funds. And this past December, it switched over to stock funds. So the average retail investor is now just getting engaged. I think that’s interesting.

Laszlo Birinyi has written extensively about market cycles and talks about the classic fourth leg of a bull market is when the retail investor gets in.

We’ve been through this before.

In the early part of the 1990s, the retail investor wasn’t anywhere around. We were just recovering from the Resolution Trust, the collapse of much of the nation’s savings-and-loan industry.

So the average retail investor was worried. And the stock market went straight up for a number of years. The average retail investor didn’t get involved until 1996, and then of course the stock market went straight up for four more years after that.

Bob Landaas is president of Landaas & Company.

Money Talk Video by Peter May

(initially posted May 21, 2013)

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