Investors debate the origin of the market’s current run
Is the bull market in stocks younger than it looks?
Investors and analysts are celebrating what’s widely recognized as the ninth anniversary of the start of the stock market’s current bull run on Friday. And why not? After all, it marks the bear market low set on March 9, 2009, as the world was reeling from the global financial crisis.
By that measure it is also one of the longest—and strongest—bull markets in history. But naysayers argue it isn’t really that ancient, a case that might cheer bulls not comforted by the adage that bull markets never simply die of old age.
Friday “is the anniversary of a big low, most definitely,” said Jeffrey Hirsch, editor of the Stock Trader’s Almanac, in an interview. “I don’t think it is the anniversary of the current cyclical bull market, though.”
Critics dismiss the 20% rule of thumb used to define bull and bear markets. The 20% rule holds that a bear market is under way when an asset falls 20% from its bull-market high, while a bull market begins once it rises 20% from its bear-market low.
Hirsch relies on more specific parameters established by Ned Davis Research. It defines a bull market as 30% rise in the Dow after 50 calendar days or a 13% rise after 155 calendar days. Reversals of 30% in the Value Line Geometric Index also count, he says. A bear market uses the same figures, but in the opposite direction. (Check out Hirsch’s blog post for more details on the parameters and his thoughts on calling bull and bear markets.)
The bottom line is that under this criteria, stocks fell into a bear market between August and October of 2011 and again between May 19, 2015 and Feb. 6, 2016. So that would make the current bull just a shade over two years old.
According to the Stock Trader’s Almanac, the average bull-market move for the Dow Jones Industrial Average is 85.6%, which would put it at 29,000—a level Hirsch thinks the market could test before the bull has run its course.
Others, meanwhile, argue that it is illogical to measure a bull market from the previous bear market low. Barry Ritholtz, founder of Ritholtz Wealth Management, has written extensively on the topic. In a Bloomberg View column last fall, he argued that measuring a bull from a bear-market low would be “akin to measuring your own age from your date of conception.”
Instead, he argues that the current bull was born in March 2013, when the S&P 500 index SPX, +1.10% eclipsed its precrisis closing high of 1,565.15 set in October 2007.
But there are still plenty of market veterans who are comfortable celebrating a nine-year anniversary.
“When I think of when the bull market started, it is from the March 9 low,” said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute.
Ryan Detrick, senior market strategist at LPL Financial, pegs the bull market as the second longest at 109 months. That is just behind a 114-month run from October 1990 to March 2009. Over its current run, the S&P 500 is up just more than 300%, also trailing the 1990s bull which saw a trough-to-peak gain of 418% (see chart below).
Does it matter that the bull, by this measure, is getting long in the tooth?
“We want our clients to realize that we are far into this [economic] cycle and we’re getting a bunch of fiscal stimulus whether it is stimulus spending or a tax cut,” Wren said. He expects the boost to extend the economic cycle somewhat, likely allowing the bull market to celebrate a 10th anniversary. But he warns that it is difficult to predict the economy with much confidence beyond the early part of 2019.
The biggest worry, he said, is a mistake by an overly aggressive Federal Reserve that brings the next recession closer, and which could bring the S&P 500 and the Dow Jones Industrial Average DJIA, +1.16% firmly lower.
Ultimately, the debate over when the bull market began is less important for investors than the question of when it ends—and that’s something that might have little to do with it is start date.
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