Can the longest bull market in history defy the doubters?



The US bull market that started last week in March 2009 became the longest in history. Does it matter? Is age not relevant? Or should investors worry that this aging bull market simply can not last much longer?

The duration of a bull market is not nearly as important as fundamental factors such as earnings, valuations and interest rates, says Michael Batnick of Ritholtz Wealth Management, but it can not be dismissed as irrelevant either. "It can affect investors' psychology," says Batnick, with some investors worried about stocks that may be overdue, as the current bull market appears to be the year-long bull run that sprung up after the bursting of the technology bubble. 2000 was outdated.

A bear market is generally defined as a declining peak of 20 percent, although not everyone agrees when market cycles begin and end. Some say the current bull market is not as old as it seems, arguing that it did not start in March 2009, but in March 2013, when the shares eventually exceeded the peak of their dotcom era. But is it really credible to claim that stocks were not in a bull market between March 2009 and March 2013 when the S & P 500 increased by 135 percent?

However, it is credible to argue that the current bull may not be as old as it looks. The S & P 500 has experienced some very difficult moments in 2011, with the vast majority (69 per cent) of the shares in individual beer markets. The index itself even fell by more than 20 percent – at the lowest point of the day on October 4, the S & P 500 had dropped 21.6 percent from its peak six months earlier. The index then reached a low point in the lowest day, so that by the end of the trading day it was 19.4 percent lower – which was a pittance for the official territory of the bear market. Officially the inclusion of 2011 is a correction rather than a bear market, but only because of a technical character. If the current bull market dates from October 2011, it is by no means the longest ever recorded.

& # 39; Destroyed & # 39;

Others claim that the deferred correction that took place between May 2015 and February 2016 was in many respects a bear market. Admittedly, the S & P 500 only fell by 14.2 percent, but the median stock fell by 25 percent, notes Michael Batnick. Other market segments, such as the Russell 2000 index with small capitalization and indices of emerging markets, were "destroyed", with 26 and 36 percent respectively. The MSCI World Index also fell in the bear market, as did most international indices, which lost more than 20% of their value.

Moreover, some observers, such as Bespoke Investment and Yardeni Research, claim that the longest bull market actually lasted 13 years, between 1987 and 2000. Recession in the United States and the Iraqi invasion of Kuwait in 1990 saw the S & P 500 19.9 percent fell for a period of three months, which Yardeni classifies as a correction instead of a bear market. An obvious question is: if that period qualifies as a bear market, then that certainly also applies to 2011?

To say that the current bull market is the longest in history requires leaning on "a rather simplistic and demonstrably useless method of dating and classifying bull and bear markets," as Michael Santoli of CNBC states. In addition, the S & P 500 reached 418 percent during the bull market in the 1990s, according to LPL Research, well ahead of the gains observed during the current bull market (about 300 percent). Indeed, if there are dividends, US equities have achieved an annual return of 10.9 percent over the past 10 years – only slightly above the historical average, which is hardly indicative of an unsustainable bull that requires significant losses.

Expensive

Yet, while Michael Batnick believes that the current bull is not as old as it has become, he admits that you "find it hard to find who thinks we're still in the early stages of a bull market". The cyclically-adjusted price-earnings ratio (Cape) of the S & P 500 is "as high as it has ever been," says Batnick, with the exception of 1929 and 2000. Some other valuation statistics are no less alarming.

The price / sales ratio of the S & P 500 is just as high as the market peak in 2000 – the "scariest graph in our database", says Chief investment officer Doug Ramsey of Leuthold Group. The median turnover of the median company is even more than twice as high as in 2000, says Ramsey, who illustrates his point with another chart that he does not consider suitable for a family-friendly publication & # 39 ;. In 2000 the overvaluation was "highly concentrated" in the technology sector; today it is "penetrating".

Yet overvaluation only rarely leads to a bear market. A catalyst is required for this. Eight of the last ten bear markets were accompanied by recessions, according to JP Morgan data, but there is little evidence of a recession. "Continuing economic growth has been overwhelmingly positive in the past on positive equity returns, with a high probability of positive returns and low chances of large losses," said Goldman Sachs in a recent update of the forecast for 2018.

Only a quarter of the US bear markets occurred during economic expansion, says Goldman, and stock returns tend to remain favorable up to about five months prior to the start of a recession, "highlighting the fine for leaving the market prematurely in the absence of increased recession "This is repeated by JP Morgan, which says that about half of the indicators that follow suggest that markets are in the middle cycle rather than in the late cycle. can run, it says.

The rising company profits also support the bull market. The results in the second quarter grew by 24 percent and sales by 9.8 percent, according to FactSet data, while a record number of 80 percent of companies beat the estimates.

Wide rally

The technical outlook also looks relatively rosy. Typically, bull markets narrow before they peak, with the heavy work being done by a decreasing number of large-cap stocks. However, recent stock gain is largely broad & # 39 ;, say BMO Capital Markets. The Oppenheimer analyst, Ari Wald, agrees and notes that the line NYSE Advance-Decline – a breadth indicator that measures the number of advancing shares minus the number of declining shares – reached new heights last month.

This width reached a peak for the S & P 500 in 12 of the 15 most important peaks since 1950, says Wald, with stocks that tend to peak about five months after the peak in width. In other words, conditions favor the bulls for the remainder of 2018, at least.

In general, it seems that the longest bull market in history is not as extraordinarily long as it seems. It is true that the bull is old, but the bull markets do not just die of old age, they use the old adage of Wall Street. Profit growth and economic conditions do not suggest that a recession is likely to occur quickly, regardless of the age of the bull market.

Yields "are unlikely to be as high or as impressive as in the past," said JP Morgan, but investors should remain wary of buying premature obituaries for the ongoing bull market.


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