This is my webinar presentation at Princeton’s Bendheim Center for Finance on "Market Values, Cycles and Bubbles." If you want to actively participate + ask questions you must register here. Otherwise, you can watch the livestream on You Tube. BCF asks the audience some baseline poll questions before the event begins — these are the multiple choice questions for that poll.

1. Market Values, Cycles and Bubbles

2. Today’s Discussion
1. Bull & Bear Markets?
(What is a market cycle, anyway?)
2. How Much Do Valuations Matter Anymore?
(How do you measure value?)
3. Is this a Bubble?
(And how can you tell?)

3. Bull & Bear
Market Cycles

4. Bull Market Cycles
Survey question: The Current Bull Market is:
a) 12 years old, and very late in the cycle;
b) Looking past the pandemic + forward to the recovery;
c) Reset by the 2020 crash/recovery, its barely a year old;
d) Who cares about the age of a bull market?

5. What is a Bull/Bear Market ?

6. What is a Bear Market ?

7. What is a Bull Market ?

8. Bear Markets Begin Above Prior Bear Markets

9. Bear Markets Begin Above Prior Bear Markets

10. Bull Market 4 Traits

11. 4 characteristics:
1. Broad economic expansion, rising corporate revenues + profits;
2. Rising stock prices making new all-time highs;
3. Improving investor sentiment manifest in the willingness to pay
more for each dollar of earnings;
4. Lasting over a substantial length of time – years and decades
What is a Secular Bull (Bear) Market?

12. What’s the Dominant Narrative?

13. What is a Bull/Bear Market ?

14. The Current Bull Market is:
a) 12 years old, and very late in the cycle;
Bull markets begin when they make new highs after a long. broad
trading range (2013 not 2009)
b) Looking past the pandemic + forward to the recovery;
Markets are always forward looking – what does this tell you?
c) Reset by the 2020 crash/recovery, its barely a year old;
Data suggests slight outperformance following 30% drop
d) Who cares about the age of a bull market?
There is no evidence the age of a market is what ends them

15. 2
Valuations:
Are you looking at
them the wrong way?

16. Market Valuations
Survey question 2
2. Today’s Market Valuations Are:
a) The most expensive we have seen in a long while
b) Pricey, but tolerable
c) TINA, Fed made Valuations no longer matter
d) Its complicated

17. 7
Why Markets Don’t Care If the Economy Stinks
2020 Advantage
Lockdown Stocks

18. 7
Market Cap % of S&P500, by Industry

19. Context Matters
Inflation vs Deflation

20. Different Buyers at Different Times

21. Everything is Working
96.8
0
10
20
30
40
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60
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100
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2
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S&P 500
(Percent of stocks above 200-day moving average)
Data Source: Stockcharts.com

22. $100 Million Dollar Pastrami!

23. Say Cheese!

24. Today’s Market Valuations Are
a) The most expensive we have seen in a long while
True, but only if you use single variable analysis
b) Pricey, but tolerable
Assuming you have a long-term holding period and are prepared
to lower your return expectations
c) TINAL: Fed made Valuations no longer matter
That’s too 1999 for me
d) Its complicated
In finance this is almost always a winning answer

25. 2
Bubbles:
How can you tell? What do you
do?

26. Survey question: How Bubblicious is the market today?
a) Congratulations! Its a Bubble!
b) Pockets of froth + speculation,
c) Nothing to worry about — its all good!
d) No one can identify a bubble in real time.

27. Most Volatile Year Ever
0%
5%
10%
15%
20%
25%
1
9
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1
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5
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1
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1
8
2
0
2
0
S&P 500
(30-Day Standard Deviation)

28. 12 Month Returns?

29. 13 Month Returns

30. It Gets Harder From Here
76%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
1
9
5
1
1
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4
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7
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2
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S&P 500
1-Year Change
Source: YCharts

31. Expected Returns

32. Growth and Value
Source: Ritholtz Wealth Management, Data via Ycharts (S&P 500)
47%
55%
-10%
0%
10%
20%
30%
40%
50%
60%
A
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1
1-Year Returns
iShares Russell 1000 Value ETF Total Return iShares Russell 1000 Growth ETF Total Return

33. Housing Shortage

34. New Home Sales

35. Not a Bubble

36. How to Spot a Bubble in Real Time
1995-2000:
S&P 500:
25% per year
211% over 5 years
Nasdaq 100:
60% per year
946% over 5 years
2015 – 2020
SPX 11.8%/yr
75% over 5 years
NDX 17.6%/yr
125% over 5 years

37. How to Spot a Bubble in Real Time
1. Standard Deviations of Valuation
2. Significantly elevated returns
3. Excess leverage
4. New financial products
5. Expansion of Credit
6. Trading Volumes Spike
7. Perverse Incentives
8. Tortured rationalizations
9. Unintended Consequences
10. Employment trends

38. How Bubblicious is the market today?
Source: NYFed
a) Congratulations! Its a Bubble!
Hard to see elements of a bubble
b) Pockets of froth + speculation
Yes, but there always are
c) Nothing to worry about — its all good!
Always a wrong answer
d) No one can identify a bubble in real time.
Indentifying and acting on are two very different things

39. One Final Thought

40. 2
Chairman, Chief Investment Officer,
Ritholtz Wealth Management
24 West 40th Street, 15th floor
New York, NY 10018
212-625-1200
britholtz3@bloomberg.net
Barry L. Ritholtz