Is This What the End of a Bull Market Looks Like?

What comes after the greatest bull market of all time?

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Obviously, no one knows what the market is going to do next, so I'm not suggesting anything cataclysmic by asking that question. Maybe the market will close higher today; maybe it will close lower. Same with tomorrow. Either way, now is as good a time as any to ask what comes next. There has been a vague sense, for years now, that tumbles like the one in mid-April are erased soon enough. Even a poll reported in the Wall Street Journal finds a plurality of investors believing the market will be up over the next 12 months, and elsewhere there is news that venture capital funding remains at an all-time high.

I remember a year or so ago asking a small clutch of baby boomers what, if anything, might cause them to start pulling money out of the market. No one could think of anything. Heavy boomer investment in the market is one of those commonly cited factors that will supposedly keep the market aloft for years to come--it's not until 2007, or whatever, that they start bailing. Obviously, though, if this were true and everyone knew it, then what kind of idiot would wait around until 2007? Wouldn't you want out a year before? But then maybe everyone else could figure that gambit out, so maybe they'd all start to reduce their market exposure in 2005. Or 2003. Or maybe, just to be on the safe side, right now.

Psychology is not supposed to be all that important to the ever-rational markets. And it's true that productivity and earnings and other fundamental measures seem largely to be sound. But sometimes it seems worth asking whether investor confidence is based at least in part on the idea that most investors figure most other investors are confident. We've just come through an earnings season that was remarkable for the strength of the quarterly numbers reported and the nagging recurrence of diminished expectations for the future--most recently from widely held AT&T. Now the market has little news to chew on aside from the Microsoft case and general obsessing over the Fed's next move.

Several times in the last five years it has appeared as though the markets might be about to settle down and simply bounce within a given range--as though that would be the answer to what comes after the great bull market: not an earth-shattering crash but a slow fade. We're in another one of those moments. Each time in the recent past, obviously, the market has ultimately surged again, and the answer has turned out to be: more of the same. The unanswered question has always been how investors (and I mean both individuals and professionals) might respond to a period of sustained choppiness--six months or a year or more without significant, marketwide upticks. Would people start to think of reasons for moving their money elsewhere?

It is, of course, impossible to say. There is no obvious evidence of flaws in the economy that might undercut market fundamentals. But then, such evidence tends not to be obvious until well after the fact. By the time we all figure out what sort of scenario might follow the greatest bull market of all time, we will already be living it.

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