Bull market rivals ’90s at half valuation

Investor Mania

Facebook Inc., the world’s largest social network, agreed last month to acquire mobile-messaging startup WhatsApp Inc. for as much as $19 billion, the biggest Web acquisition since Time Warner’s $124 billion merger with AOL in 2001. Facebook shares have jumped 32% this year and are trading at 122 times earnings.

“Even within the rising tide lifting all the ships, there are some that are faster,” Sam Wardwell, an investment strategist at Pioneer Investments in Boston, said in a March 6 phone interview. His firm manages about $225 billion. “When you look at a lot of stocks in the social-media space, they seem to exhibit all the signs of investor mania.”

Growth Backdrop

The bull market entering its sixth year is less than two weeks from taking out the 1982-1987 stretch to become the fifth longest of all time, according to Bespoke Investment Group LLC. While it’s not even half the length of the 1990s technology rally that ultimately spanned 12 years, the strongest ever, the current stretch already exceeded the average of five years for other advances since 1928, the data show.

Unlike the technology rally, which was fueled by a booming economy that eventually led the Federal Reserve to raise interest rates, today’s advance was rooted in the worst financial crisis since the Great Depression, one that forced the central bank to carry out three rounds of monetary stimulus to avoid a recession. The U.S. economy has expanded at an average rate of 2.3% per quarter since 2009, the slowest recovery since World War II, data compiled by Bloomberg show.

“Typically by the time the market peaks, monetary policy has tightened for a number of quarters,” Michael Shaoul, chairman and chief executive officer of Marketfield Asset Management LLC, which has more than $20 billion, said by phone on March 5. “We can say today monetary policy is not tight, it’s nowhere near tight and it’s not going to be tight for a reasonable period of time.”

“Any bull market has a little bit of over-enthusiasm in it, but the euphoria hasn’t got to a point that the entire valuation of the market is now suspect,” he said. “What we’ve done in the past five years is remarkable.”

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