The market's doubled - so what?

The MCX (FTSE250) is up 117% over a 5-year period. Less spectacularly, the UKX (FTSE100) is up 62% over the same period.

So we must be way overdue for a correction, right? Obviously it would be foolish of me to categorically rule out a correction or bear market. Anything can happen.

But consider this:

1. The market was at a very very low point 5 years ago, so any recovery is bound to look dramatic. That 117% may therefore be less meaningful than is first supposed, as you are starting from a very low base.
2. 2011 was a down year, so the rise hasn’t been “inexorable”. Stockopedia reports that, over 3 years, the FTSE350 rose 13.03%. That’s a mere 4.2% pa. The drama was in the first 2 of those 5 years, not the last 3.
3. Stockopedia reports that the median forecast PE is 14.6. Earnings growth is estimated to be 14.7% – which admittedly is probably too high. It seems unlikely that corporate earnings will, in aggregate, rise by that high amount. Even if I factor out that growth, I get a PE of 16.7. That’s above historical norm, but not wildly so – especially if we do get strong economic growth.