In recent weeks, the U.S. stock market has experienced significant fluctuations. Some friends have asked about the current valuation of U.S. stocks, whether it is suitable for investment, and whether the U.S. stock market, known for its long bull and short bear cycles, is more difficult to wait for investment opportunities.

The U.S. stock market has long bull and short bear cycles, but it is not lacking in investment opportunities.

The long-term returns of A-shares are not weaker than those of U.S. stocks, and may even be slightly higher, however, the difference in the volatility of ups and downs between these two markets is quite significant.

A-shares have long bear and short bull cycles.

Bull markets often exhibit characteristics of sharp increases and brevity, frequently rising two to three times or even higher within a span of one to two years.

For example:After achieving a 5-star rating from 2012 to 2014, A-shares in China saw a rapid increase of 2 to 3 times in just a few months; following the 5-star rating in 2018, blue-chip stocks and consumer stocks doubled in value over the next two years. Typically, after a bull market, there is a prolonged period of gradual decline until the next significant surge arrives.

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In contrast, the U.S. stock market exhibits a pattern of long bull markets and short bear markets. The duration of a bull market in the U.S. can even account for more than half of the time. However, it is usually not characterized by explosive growth; a surge-type bull market like that seen in A-shares in 2007 and 2015 is quite rare. Most of the time, the market experiences a more moderate increase of about ten to twenty percent annually.So, does the long bull and short bear trend in the U.S. stock market mean that there are few opportunities for undervaluation?

Actually, not necessarily.

Let's take the NASDAQ-100 Index of the U.S. stock market as an example.

Over the past 20 years, investment opportunities in the U.S. stock market have been as follows:

- Between 2000 and 2002, the bursting of the internet bubble led to an over 80% drop in the NASDAQ-100 Index, reaching an undervalued state.

- In 2008, the financial crisis occurred, causing the U.S. stock market to plunge by half, reaching its lowest historical valuation, and this undervaluation persisted until 2013.

- At the end of 2018 and the beginning of 2020, the U.S. stock market experienced a brief period of undervaluation.Next, let's delve into the specific trends of the NASDAQ-100 Index over the past 20-plus years.

The Burst of the Internet Bubble to the 2008 Financial Crisis

The 1990s marked the peak of the U.S. stock market's internet bubble.

By 2000, the NASDAQ-100 had reached its historical peak valuation.

Subsequently, from 2000 to 2002, the internet bubble burst, and the NASDAQ-100 also experienced a significant correction, with the largest decline exceeding 80%.

In the following years, the U.S. stock market rebounded somewhat.However, by 2008, the financial crisis erupted, and the U.S. stock market continued to plunge, with the NASDAQ-100 falling to its historical lowest valuation.

In fact, it was not just the NASDAQ-100; indices like the S&P 500 also reached their historical lowest valuations during the financial crisis.

At that time, it was a five-star opportunity for the U.S. stock market.

2008-2013: U.S. stock valuations remained relatively low.

After 2008, the U.S. stock market began to slowly climb, gradually recovering from the five-star level.However, for the majority of the time in between, the U.S. stock market was undervalued, with the undervaluation period lasting for about 4-5 years. This was also the easiest few years to invest in U.S. stock funds, as valuations remained relatively low throughout.

After 2013, the U.S. stock market gradually returned to normal valuations.

End of 2018, beginning of 2020: Periodic undervaluation

After 2016, there were fewer periods of undervaluation in the U.S. stock market. Mainly at the end of 2018 and the beginning of 2020, there were a few months when the U.S. stock market was undervalued.At the beginning of 2020, during the undervalued phase, we also invested in varieties such as the NASDAQ 100 and S&P Technology.

Later, we took profits, and the returns all exceeded 50%.

As of early August 2023, the valuation of U.S. stocks is normal to slightly high, and there are no investment opportunities appearing for the time being.

However, there is no need to worry.The stock market often alternates between bull and bear markets. Even though the U.S. stock market tends to have longer bull markets and shorter bear markets, there will still be opportunities for undervalued investments in the future.

The stock market exhibits cyclical fluctuations.

There are three cycles that have a significant impact on the stock market:

- The fundamental cycle, which is determined by the fast or slow growth of earnings from listed companies.

- The liquidity cycle, which is influenced by the rise and fall of interest rates.

- The sentiment cycle, where investors tend to become more optimistic as the market rises and more pessimistic as it falls.

These three cycles always appear in a recurring cycle.When one or two of these cycles are at their peaks or troughs simultaneously, bull and bear markets emerge.

We often say a phrase, "For long-term investment, opportunities are not lacking, but money is."

This sentiment also stems from this concept.