Is the Stock Market Atop "A Permanently High Plateau" -- Again?

by Editorial Staff
Updated: February 26, 2019

In 1929, economist Irving Fisher said:

Stocks have reached what looks like a permanently high plateau.

Three days later, the stock market took a dramatic dive, and the Great Depression eventually followed.

Fisher's statement became legendary, yet that wasn't the last time that a stock market observer made a bold prediction.

As Robert Prechter's Conquer the Crash noted when the book first published in 2002:

One thing that does happen repeatedly near a top in the stock market is that investors raise their upside forecasts dramatically. In 1999-2000... books came out calling for Dow 36,000, Dow 40,000 and Dow 100,000.

As we know, those predictions came just in time for the start of a bear market in 2000. But the bull market that followed rekindled the sentiment that stocks had nowhere to go but up.

In 2014, one news source noted a forecast that was made near the crest of the 2007 bull market peak:

Goldman Sachs chief strategist... set an uberbullish 1,675 price target for the S&P 500 for [2008].

However, the stock market index ended 2008 at 903.25, which was a 37% drop and 46% below the strategist's target.

After the stock market bottomed in 2009, an even longer bull market followed, with the DJIA reaching an all-time high of 26,951.80 on Oct. 3, 2018.

Even though that was nearly five months ago, optimism has returned, despite a very volatile Q4 2018. Our January 17 Elliott Wave Theorist notes:

There was a brief bout of pessimism heading into the low of December 26, but it has completely reversed over the course of the market's... [January] rally.

Indeed, the return of financial optimism is expressed in this Jan. 2 Kiplinger's headline / subheadline:

When It Makes Sense to Buy the Dip

If nothing serious has gone wrong with the company, consider a stock decline a buying opportunity.

Four days later, a Jan. 6 New York Times article titled "Who Wants a Market Downturn? These Investors Actually Do," quoted a venture capitalist:

“We definitely want to take advantage of a market downturn.”

Other venture capitalists told The New York Times that they were hoping for a stock market dip so they could buy. The implication is clear: A downturn would be temporary and relatively shallow, certainly not severe, with a strong rebound to follow.

Two days later, on Jan. 8, a retiring financial reporter for a national newspaper wrote:

"The best thing you can do if market gyrations are causing you emotional pain is to turn off the TV, tune out the market pundits and take a break from keeping track of the Dow’s every move. The market, I have learned, is like a lasting friendship with ups and downs along the way.”

In a nutshell, "buy and hold."

A week later, on Jan. 15, this Bloomberg headline provided another expression of "investing for the long-term":

A $1.8 Trillion Investor Says U.S. Stock Rally Has Years to Run

So, one must ask: "Is the stock market reaching 'what looks like a permanently high plateau' again?"

Sentiment is not everything. The stock market's Elliott wave pattern, a more detailed snapshot of investor psychology, is also telling a compelling story -- right now.

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