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Bull market 'middle aged,' so take caution, analyst says

Stock MarketEconomy, Business and FinanceStock ActivitiesT. Rowe PriceNASDAQFinancial MarketsMoney and Monetary Policy

Proceed with a caution. The green light has turned yellow.

That’s what top equity strategists at T. Rowe Price, a major investment firm, are telling investors as this year’s stock market rally shows little sign of easing.

"We’re starting to see signs of caution in the market," John Linehan, head of U.S. equities at T. Rowe Price, said at a media briefing in New York on Tuesday.

The Dow Jones industrial average is up more than 21% for the year, while the broader Standard & Poor’s 500 has rocketed 26% this year.

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The bull market in the U.S. stock market since March 2009 has lifted the S&P 500 164% through mid-November.

But given that the average bull market since 1928 has lasted 57 months, returning 165% to investors, the current run-up is getting "middle-aged," Bill Stromberg, head of equity at T. Rowe Price, said at the same event.

Many on Wall Street expect a correction next year to sink stocks by 10% or more, perhaps when the Fed begins to taper its stimulus program.

Investors have been plowing into stocks this year as the easy-money policies of the U.S. Federal Reserve have made historically safer investments like bonds and savings accounts less attractive.

Still, a growing number of market experts are sounding notes of caution, though stopping short of saying stocks are in a bubble.

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Russ Koesterich, chief investment strategist at financial giant BlackRock Inc., said the Nasdaq composite index is still far from its frothy level during the dot-com boom more than a decade ago.

The tech-focused Nasdaq is trading at roughly 24 times its previous 12 months’ earnings, Koesterich said in a note on Monday.

But that’s lower than the Nasdaq’s 18-year median of 30 times earnings and way below the 150-times-earnings level it was trading at when the index first crossed 4,000 in 1999, he said.

Although some areas of the stock market appear frothy, Koesterich said, “today is not 1999 and stocks are not in a broad market bubble.”

Investors were in a selling mood Tuesday, driving the Dow down more than 100 points in early trading.

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