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Nov. 10, 2015, 10:53 a.m. EST

The party on Wall Street is just about over

Bull market lasted six years, but the Fed is about the pull the punch bowl away

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By Irwin Kellner, MarketWatch

The bull market was great fun while it lasted.

As far as the stock market is concerned, Monday’s decline was just a hint of things to come. A growing number of equity pundits think that stocks are heading downhill from here.

It was great fun while it lasted. I am referring to the bull market that began in March 2009 and didn’t look back until a couple of months ago. Since reaching its lows over six years ago, the major market averages /zigman2/quotes/210599714/realtime SPX -0.39%  have more than doubled in price.

True, it was a bumpy climb, filled with thrills and chills. Two chills that come to mind are the “flash crash” of May 2010 and the swoon that took place this past August.

But the bear remained in hibernation. Neither these nor other declines met the criterion of a bear market. This means that the rise in stocks that began in March 2009 is one of the longest stretches without a bear market in quite a few years.

Not only that, but October was the best month for stocks in four years. As you might have expected, this has driven the market’s price-earnings ratio well above average. The current ratio for the Standard & Poor’s 500 stocks is a tad over 22; the average P/E ratio for these stocks since the 1870s is 16.6.

Investors should enjoy the good times while they are still around, for there are increasing signs that the party may soon be over. The Federal Reserve has dropped more than a few hints that it is planning to take away the punch bowl.

The money mavens are making serious noises about “normalizing” monetary policy. This means that central bankers have decided that the last remnants of the Great Recession have just about faded away, and that they can safely remove some of the excess liquidity it pumped into the financial system.

The Fed is telegraphing its next move by putting a rate hike back on the table for the month of December. It had to, in view of the employment data for the month of October, which was undeniably strong. Like it or not, today’s low rates won’t last forever; they can’t.

Thus stocks face the future wedged between a rock and a hard place. If the Fed hikes interest rates, stocks will fall, fearing the loss of an important prop under prices as well as under the economy.

On the other hand, if the Fed should decide not to raise rates at this time, stocks will also fall over concerns that the economy is too weak to take a hike in rates.

All this said what should an investor do, buy, sell or stand pat? Your guess is as good as mine. As the old expression goes, you pays your money and you takes your choice.

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Dec. 6, 2023 5:00p

Irwin Kellner is MarketWatch's chief economist. Follow him on Twitter @MktwKellner.

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Irwin Kellner, MarketWatch's chief economist since 1998, writes a weekly column on the economy and the financial markets. He has been a leading economist for...

Irwin Kellner, MarketWatch's chief economist since 1998, writes a weekly column on the economy and the financial markets. He has been a leading economist for more than 40 years and previously served as chief economist for North Fork Bank, Chase, Chemical and Manufacturers Hanover. Widely quoted by the media in the U.S. and abroad, Kellner regularly addresses groups of business people and community leaders and appears regularly on Cablevision's News 12 Long Island.

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