Trading Strategies: predicting the end of this bull market
No bull market lasts forever, but investors cannot possibly predict exactly when it will end. Analyst Robert Stephens looks at the current market and a high-quality FTSE 100 stock for long-term investors.
3rd December 2025 08:34
by Robert Stephens from interactive investor
Investor concerns about the prospect of a stock market crash have intensified over recent weeks. The volatility index (VIX), which is often referred to as Wall Street’s “fear gauge”, recently spiked to its highest level since the market correction during April.
This evidences investor concerns regarding whether artificial intelligence (AI) can ultimately deliver on its much-hyped potential and if stock market valuations have become excessively high following a period of exceptionally strong growth that has seen the S&P 500 index and the FTSE 100 index make several new record highs.
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Investors are also worried about whether a continued uncertain period for the world economy amid above-target inflation, elevated interest rates and ongoing geopolitical risks will negatively affect company earnings, and thereby share price performance, over the short run.
Stock market unpredictability
Of course, it is understandable that investors have such concerns. After all, no bull market has ever lasted in perpetuity, with it having always been replaced by a bear market. The problem facing investors, though, is that it is impossible to predict exactly when a stock market crash will occur. Red flags surrounding market valuations, the economy and geopolitical uncertainty, as well as countless other risks, can be present for many months, or even years, before a bull market ultimately comes to an end.
For example, in the case of the FTSE All-Share index, the average length of a bull market since 1970 is around seven years. This compares with the current bull market’s length of roughly 5.5 years. The previous bull market, which lasted from the depths of the global financial crisis to the beginning of the Covid-19 pandemic, went on for nearly 11 years. This was in spite of many investors predicting its demise well before its end, with rich market valuations and various other red flags being given as reasons for a market crash that took much longer to arrive than anticipated.
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As a result, investors who predict there will be an imminent market crash could easily be proved wrong. Indeed, annual inflation across developed economies is widely expected to moderate over the medium term so that it consistently meets central bank targets. This should provide scope for additional monetary policy easing that, alongside recent interest rate cuts, has a positive impact on economic growth and company earnings, thereby helping to justify today’s elevated market valuations.
A buy-and-hold strategy
Rather than trying to forecast when the FTSE 100 index or S&P 500 index will crash, it may be simpler and more logical to instead adopt a buy-and-hold strategy that doesn’t seek to time the stock market. Although such a strategy leaves investors exposed to the stock market’s inherent volatility, which may include periods of severe decline, equity markets have ultimately generated exceptional total returns over the long run.
For example, the FTSE 100 index’s annualised total return since its inception in 1984 is in excess of 8%. When compounded over the long run, this rate of return could have a hugely positive impact on a portfolio’s total valuation.
Investors, of course, can potentially beat the wider stock market’s performance by focusing on high-quality companies that are undervalued. They are likely to include firms that benefit from having a solid balance sheet and a clear competitive advantage, as well as other attributes including strong cash flow and a sound strategy. Over time, they could deliver superior earnings growth, as well as the prospect of an upward rerating, that produces a relatively attractive capital return vis-à-vis the wider stock market.
While the FTSE 100 index’s elevated price level may suggest there is likely to be a dearth of attractively priced, high-quality companies at present, several UK-listed large-cap stocks appear to offer long-term investment appeal. Holding a diverse range of them for the long run, rather than seeking to time what is a highly unpredictable stock market, could prove to be a worthwhile move.
A high-quality company
Performance (%) | |||||||
Name | Price | Market cap (m) | One month | Year to date | One year | Forward dividend yield (%) | Forward PE |
IMI | 2,452p | £6,000 | 2.5 | 34.7 | 36.2 | 1.4 | 18.7 |
Source: ShareScope on 2 December 2025. Past performance is not a guide to future performance.
Shares in FTSE 100-listed engineering company IMI (LSE:IMI) have surged 32% higher this year, thereby outperforming the UK’s large-cap index by 15 percentage points. As a result, they now trade on a relatively rich forward earnings multiple of 18.7. This is above the wider index’s price/earnings (PE) ratio of 17.6, which could cause investors to become concerned about the stock’s future performance.
The company, though, appears to be worthy of a premium valuation versus the wider stock market due to its status as a high-quality business. For example, its net debt-to-equity ratio is 51%, while its net finance costs were covered 26.1 times by operating profits in its latest financial year. Both figures show that the firm has the financial means to overcome an uncertain near-term period for the world economy.
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Despite having modest debt levels, the company’s return on equity amounted to 30% in its latest financial year. Alongside a 100-basis point rise in its operating profit margin last year, which increased to 19.7%, this suggests the firm has a competitive advantage. This could help it to deliver an impressive financial performance in the short term as well as over the coming years.
An upbeat financial outlook
Indeed, IMI is forecast to post an annualised rise in earnings per share in excess of 7% over the next two financial years. This further helps to justify its premium valuation, with the company’s latest quarterly trading update confirming that it is on track to meet previous financial guidance for the current year. The update also stated that organic revenue, which excludes the impact of acquisitions and disposals, rose by 12% versus the same period of the previous year.
The company’s status as a cyclical business that is geographically diversified means it is well placed to capitalise on an upbeat long-term global economic outlook. Although some investors are understandably concerned about the potential for continued economic uncertainty in the short run, history suggests that GDP growth across developed economies is likely to revert to the long-term average in the coming years. This should lead to a stronger operating environment for cyclical firms that could prompt higher earnings growth and improved investor sentiment.
A sound growth strategy
IMI recently announced the disposal of its mission-critical valves and actuators business for £225 million. This should allow it to focus to a greater extent on three global mega-trends – energy, automation and healthcare – that are its key growth areas. They are likely to offer a broad range of opportunities to generate rising profits in the long run, thereby acting as significant possible catalysts on the firm’s share price.
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Clearly, the company’s financial performance and market valuation could prove to be relatively volatile in the short run. As the stock market’s past performance shows, investor sentiment can be extremely unpredictable and could quickly change without warning. Similarly, ongoing elevated geopolitical risks and sticky inflation may weigh on the world economy’s near-term prospects and the operating outlook for cyclical firms.
But with IMI having a sound balance sheet and an improving competitive position, as well as a fair valuation given its status as a high-quality business, it appears to offer a favourable risk/reward opportunity for long-term investors when held as part of a diversified portfolio.
Robert Stephens is a freelance contributor and not a direct employee of interactive investor.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
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