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By John Wasik
CHICAGO, Jan 6 (Reuters) - What are the odds that the U.S.stock market's bull run will continue?
Despite last year's record rise - the S&P 500 and DowJones industrial average both closed at all-time highs -it does not always follow that one good year will be succeededby another. The stock market is often roiled by irrationalfears, bubblicious greed and a constantly boiling pot ofearnings reports.
Yet many pundits predict that corporate earnings and theglobal economy will continue to expand, so stocks may haveanother good year. Just don't invest thinking you will see arepeat of the 26 percent return the S&P 500 Index posted lastyear.
A little historical perspective on 2013 may be in order. Themost comparable year was 2003, when the S&P Index returned 26percent. Going back further, you would have to revisit the nifty'90s to see better returns: big stocks were up nearly 27 percentin 1998; 31 percent in 1997 and 34 percent in 1995.
What did those years have in common? Relatively lowinflation and consistent economic and employment growth. If yousee these trends continuing in 2014, odds are your portfoliowill benefit.
A continuing bull market will favor investors withbroad-based exposure to stocks in the United States abroad. Onebig-basket fund for global growth is the Vanguard Total WorldStock Index ETF, which holds some 5,000 stocks.Represented in the Vanguard portfolio are mega-caps such asApple Inc, ExxonMobil Corp and Google Inc . The fund was up nearly 23 percent last year andcharges 0.19 percent annually for expenses.
For those who are cautious about investing in U.S. stocksafter a five-year advance - which is natural - you have to castthe widest possible net. In that spirit, consider the SPDR S&PWorld ex-U.S. ETF, which invests in nearly everydeveloped country save the United States.
The SPDR fund was up about 19 percent last year and charges0.34 percent in annual expenses. Its portfolio holds companieslike Nestle SA, Samsung Electronics Co Ltd and HSBC Holdings PLC.
FLY IN THE OINTMENT
One nagging concern harbored by market skeptics like me isthat the rally could be interrupted at any moment by someunforeseen gremlin. Rising interest rates could be a negativeinfluence. Since the stock market hates uncertainty, this isalways a worry.
Again, history provides some guidance. The average bullmarket lasts for 61 months, based on market data going back to1932, according to David Larrabee, writing for the CFAInstitute's "Enterprising Investor" blog, an organizationrepresenting chartered financial analysts.
The current bull market - stretching back to March 2009 - isright around that average duration. Does that mean that when therally hits a half-decade it automatically hits the brakes? Notnecessarily.
For one thing, some rallies have gone on much longer thanthe current one. The largest sustained gains since the onset ofthe Great Depression were from December 1987 through March 2000,netting a 582 percent return over 12 years, according toLarrabee. (A distant second in bull surges was from June 1949through August 1956. This post-war rally saw a 267 percentrun-up over seven years.)
Another positive lesson from history is that most of thesebarn-burning rallies came after huge, gut-wrenching declines.Stocks rebounded after investors went through major bouts ofdiscouragement - the "Black Monday" crash of 1987; the dot-combust of 2000; World War Two; and the crash of 1929 andsubsequent Great Depression. While it can be argued that we arestill suffering a low-employment hangover from 2008, the marketmay still move ahead in a marginally improving economicenvironment.
The most important insight is that you can rarely predictthe start or the end of rallies. Who would have thought thatsome of the biggest returns would have been recorded in the1930s?
There is only one guarantee in all of this rearviewmirroring: You can't reap stock returns if you are not investedor are waiting for "confirmation" of market signals. Some of thebest periods to invest are when the general business news isnegative - or just plain boring.
