The news is always out to scare us, and the news lately keeps harping on ‘the longest bull market in history’ (meaning, the market has been going up) which will occur this week, on Wednesday to be exact. On that day, according to the news, it will have been nearly 9 1/2 years since the S&P 500 fell 20% or more (the definition of a bear, or down, market), going back to the most recent market bottom on March 9, 2009. The bad news that you are supposed to infer from this seemingly good news is that the longer it goes, the harder it will fall. I have many problems with this contention; here are a couple:
- Round numbers are human inventions, and don’t really mean much. For example, from July to October of 1990, the market fell 19.9%, so that doesn’t technically qualify as a bear market; however, it was counted because where it closed (at the end of the trading day) vs. where it ventured are two different things. Oddly enough, that is the exact decline that began the start of the bull market of the 1990’s, the holder of the current record for the longest bull market in history. If you don’t count that non-20% drop, then that bull market actually started in October of 1987 (after the famous Black Monday crash), meaning that we have another 3 years to go to break the record! Oddly enough, it ended with a 19.3% drop (at closing, vs. 20% within the day) in July of 1998; that drop took all of 45 days, and then was followed by the next bull market (a 59.6% increase) which lasted 1 1/2 years.
- Every market cycle is different, and the lack of a 20% drop within a run up doesn’t mean the lack of a bear market. For example, as recent as mid 2015 to early 2016, the market fell over 14%. That was an ugly, extended period (almost 9 months) of time, lasting over half as long (though, admittedly, only 25% as deep) as the Great Recession lasted. And, let’s not forget 6 months in 2011 when the market went down 19.4%; shouldn’t that count for something (especially since it was actually larger than the 1998 drop which ended the last bull market!)? Again, forget about the round numbers and look at fundamentals.
On that note, below is a graph of leading economic indicators (things like the stock market itself, building permits, housing prices, and new business startups) and coincident market indicators (such as employment and earnings). While this graph is NOT a crystal ball, it is something good to think about when wondering where we may lie in a market cycle. Note that the leading indicators have, for the last two recessions (2001 and 2008), turned heavily downward prior to the recessions, while right now they haven’t even come close to leveling off. This should give you comfort that, for now, the market still has room to run. I also want to remind you that, regardless of these lines, some of your money is invested for the long term, and you should always be bullish for the long term!