Boston, MA Investment Advisor Representative Tim Hayes

Summary: Looking for investment advice in Boston? Discover how Haines' bottom helped the stock market rebound after the Great Recession. Get guidance on navigating today's overpriced market.

Investing In an Overpriced Stock Market

The U.S. stock market has come a long way from its Great Recession low. That low, when the S&P 500 bottomed out at 666 on March 9, 2009, is called “the Haines’ bottom,” named after legendary CNBC anchor Mark Haines, who called the bottom of the market’s plunge on the air.[1] [2] (Sadly, Mark passed away in March of 2011.)

Today (Dec 23, 2022), that index stands at 3860, an increase of some 480% from that low, and almost tripling from its previous cycle high of 1576, reached on October 12, 2007.

How Overpriced Is the U.S. Stock Market Today?

According to three measures of value, the answer is very—and dangerously so. The CAPE ratio has the stock market as 92% overvalued. Another measure, the q ratio, has it at 93%. The market cap to GDP ratio supposedly famed investor Warren Buffett’s favorite is at 181%.[3]

Jeremy Grantham, famed money manager and founder of GMO, a Boston-based asset manager with over $60 billion of assets under management, thinks this market is comparable to the 1600s tulip bubble and the 1929 and 2000 stock market bubbles.

Total Market Cap (TMC) to Gross Domestic Product (GDP)

Analysis of U.S. Stock Market Valuation Trends and Investment Strategies

Analysis of U.S. Stock Market Valuation Trends and Investment Strategies

At the end of 2021, the US stock market was valued similarly to other extremely high valuations in history, such as in 1929, the late 1960s, the dot-com bubble of 1999, and the great financial recession of 2008, according to stock market indicators like CAPE, Q Ratio, and Market Cap/GDP, also known as the Buffett Indicator.

In 2022, the US stock market experienced a correction of almost 20%, transitioning from significantly overvalued to modestly overvalued. Since then, the S&P has risen by 26% in 2023 and is currently up 5% in 2024, returning to being significantly overvalued.

In 2022, the bond market did not provide any support to the falling stock market as it had one of its worst years due to the effects of higher inflation and rising interest rates.

In 2022, international stocks experienced a decline, although it was not as severe as the drop in the US stock market. However, the global market has seen less growth than the US market since then. In fact, international stocks have had less price appreciation than the US market over the last decade, suggesting that they are not currently overvalued.

If the US stock market goes through a severe downturn, similar to other times like 1929, early 70s, 2000, and 2008, it is hoped that bonds, now that interest rates have risen, along with some exposure to international stocks, will reduce the impact.

Time Period Stock Market Peak to Trough 10 Yr Treasury Bonds Return
2022 Inflation Scare -18% -18%
The 2008 Great Recession -54% +20%
The 2000 Dotcom Bust -38% +17%
The 1973-1975 Recession -43% +5.5%
1929 Crash We do not want to go there

Please Keep In Mind the Following Information:

There are certain individuals who hold the belief that the current stock market value is always accurate and that there are no overvalued or undervalued stock markets. However, even if we are able to determine that the market is overpriced, we cannot predict when or if it will experience a decline. It is, therefore, essential to diversify your investments and manage your assets wisely.

What Are Investors Supposed to Do?

Let’s say you received an inheritance, or you have a lump sum sitting in the bank, you are tired of earning no interest on it, and you are frustrated to see the market go up. One strategy is to do what we call dollar-cost averaging. Instead of moving all that money into the market today, you set up a plan to move it into the market gradually, say, over a period of 18 months.

If you have $100,000 to invest, you transfer $5,555 a month, purchasing the market at 18 prices instead of today’s one. Of course, there is no guarantee this strategy will produce a profit, and if the market keeps going up, you might lose out on short-term gains. However, it would help you if there were a considerable drop of, say, 57%—which happened to the market during the Great Recession.

What if You Cannot Wait?

If the idea of waiting 18 months is not for you, make sure you conduct a risk-tolerance test before investing that lump sum. (You should do a risk-tolerance test even if you decide to do dollar-cost averaging.)

The online risk-tolerance reports, FinaMetrica and Riskalyze ( Now Called Nitrogen), will give you a score you and your advisor can use to allocate your lump sum. That way, you will end up with a mix of stocks, bonds, and cash, which will hopefully help you reach your goals, with a level of risk you will be comfortable with.

By doing this, maybe you can create a portfolio that allows you to stay invested by limiting how much it might go down while simultaneously yielding a return if the stock market continues to rise.

With So Many Investment Possibilities, How Do You Know What’s Best?

Tim Hayes is a financial advisor with the experience and knowledge you can trust to know which investment vehicles may be right for you. Whether you’re an individual, small business, or company executive, he’ll set you up with a portfolio attuned to your unique needs.

Are Any Markets Undervalued?

Emerging markets have underperformed the U.S. stock market in the last ten years. And have significantly underperformed the more growth types of stocks that many of your funds invest in.

With many financial assets priced to perfection, the more you can diversify, especially into emerging markets that may be undervalued, the better.

Bonds, especially US Treasury bonds and high-grade corporate bonds, have become more attractive as interest rates followed higher inflation rates. Also, foreign bonds and some foreign stock markets may benefit if the dollar reverses course and begins to fall as other countries hike their interest rate.

Beware of TV Pundits and Hot Markets

The yang to the quiet, unassuming Mark Haines at CNBC was Jim Cramer. He remains with the network as the host of Mad Money, a nightly show on which he uses his near-photographic memory to opine on stocks.

Before Cramer became a TV host, he ran a hedge fund. In that role, he gave a speech in February of 2000: “The Winners of the New World.” In that speech, he pontificated on the changing nature of the stock market and laid out the stocks his fund was buying, most of which were high-flying technology/dot-com stocks.[4]

Cramer discussed the ten stocks he was buying, many of which ended up not surviving when, only a month later, the tech-heavy NASDAQ peaked, and then ground down some 78% for the next 30 months. One of the stocks that did survive, which Cramer recommended, still dropped from $1,305 to $22 per share.

Notes

[1] Pisani, Bob. “Mark Haines’ Legendary 2009 Call.” CNBC, March 9, 2015. http://www.cnbc.com/2015/03/09/pisani-remembers-haines-legendary-2009-call.html

[2] Wells, Jane. “Five Years Later, ‘Still Traumatized’ by Market.” CNBC, March 10, 2014. http://www.cnbc.com/2014/03/10/mark-haines-bottom-call-five-years-later-still-traumatized-by-market.html

[3] Smithers, Andrew. “US CAPE and q Chart.” Andrew Smithers, 2017. http://www.smithers.co.uk/page.php?id=34

Cramer, Jim. “The Winners of the New World.” The Street, Feb. 29, 2000. https://www.thestreet.com/story/891820/1/the-winners-of-the-new-world.html

These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice. Content provided via links to third-party sites should not be considered an endorsement of content that we cannot verify completeness or accuracy of.

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Tim Hayes

Tim Hayes

Tim has offices located in Boston and South Dartmouth, Massachusetts. He is licensed to handle securities in six states, including Massachusetts, Rhode Island, New Hampshire, Connecticut, Maine, and Florida. Moreover, he can provide investment advisory and financial planning services to clients in all 50 states.

Client Testimonials

"I have known Tim for over 30+ years and he has always guided me in making good decisions. Tim is extremely knowledgeable about how the world works and how the market is affected by decisions made by elections, stock markets, and the volatility of the world in general. He is always looking out for your best interest, along with he is someone you can count on to keep you in the know!"
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"Having worked with Tim Hayes for 28 years, I can attest that he is an outstanding Financial Advisor who has provided me with great financial guidance and support throughout the years. He is always available to answer questions and concerns and has built a relationship based on trust and honesty. Tim is a reliable, committed and trustworthy financial advisor with vast knowledge and experience."
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These testimonials are based upon an individual client experience and may not represent the experience of other customers, and should not be considered a guarantee or indication of future performance of success.

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