The great Jason Trennert of the Strategas Group recalls the beginning of the Reagan bull market (in the WSJ) in August 1982 and points out some key differences between then and now:
The only good news at the time was that America’s economic leadership, in the form of President Ronald Reagan and Fed Chairman Paul Volcker, were deeply committed to fiscal, monetary and regulatory reform. Put simply: business regulation, the tax code, inflation and interest rates were all at such dizzyingly high levels that they had room to improve in 1982. Today, interest rates and inflation are so low that they are unlikely to do anything but go higher.
Current headline inflation is near zero. Ten-year Treasurys are at a historically low level of 3.7%. Taxes on income and capital are low and are poised to go higher, while common valuation metrics for the market are hardly cheap. No investor should blame the current administration for what are likely to be lackluster market returns in the next few years. But it does seem fair to worry about the future of equities in an environment where government spending is poised to comprise a greater portion of the economic pie.