Sideways Markets
Sideways (Range-bound) Markets
Since mid-2000 we’ve been in a sideways market. During this type of market:- Capital markets experience a great deal of volatility but tend to end at the level at which they started
- The result is generally a prolonged period of low or no growth
Most non-emerging markets have been in this stalled-out mode since the tech bubble burst in the early 2000s.
Sideways markets can go on for a while, which is why you need a strategy to navigate through them. During these periods it is even more critical to focus on individual companies that do well despite how the overall markets are performing.
Typically, sideways markets end when the overall market P/E ratio comes down to under 10 times. Although stock markets do not grow, the earnings of good businesses do, resulting in multiples falling – eventually to single-digit levels. When they do, all the excess has been taken out of the markets and they can begin to grow.