Happy Birthday Bull Market! From despair to euphoria
Today marks the seventh year of the start of this bull market. After a tumultuous summer, fall, early winter of 2008, the market hit the depths on Friday, March 6, with the S&P 500 hitting an intraday low of 666.79. Likewise, the other indices hit their own capitulation levels before rebounding to score monthly gains and set the markets in motion to give investors a spectacular bull run.
From the lows of March 6, 2009, to the highs that each index achieved last year, the S&P 500 scored a gain of 220%, the Dow 184%, the Nasdaq Comp 313%, and the Russell 2000 278%. Indeed, even with the malaise at the end of 2015 and the rough start to 2016, all of the averages are still enjoying gains at or better than 200% from the depths of March 2009. So, what is there to worry about?
What flavor bull market is this one?
Given the helter-skelter performance of the market so far this year, there are two questions on traders' minds: "How long can the bull run last?" and "Is this a secular or cyclical bull market?" How one answers the second question will shed light on the answer to the first.
Without going into the technical mumbo jumbo of traders, there is a difference between a secular bull market and a cyclical one. In short, a secular bull market is long lasting across all sectors and sets and maintains all-time nominal highs.
While it is true that the indexes hit all time highs last year (see above), it is also true that they were unable to maintain them. Moreover, as far as traditional secular bull markets go, at seven years, this one is not very long. Indeed, the secular bull that began in 1877 lasted 29 years, the secular bull market that began 1949 lasted 19 years, and the secular bull market that began in 1982 lasted 18 years.
Cyclical bull markets, on the other hand, are generally shorter in duration (three to five years) and occur within a secular bearmarket. If this is a cyclical one, then it is very long in the tooth, and a notable downturn is likely around the corner.
And back again?
From despair to euphoria and back again? The great debate raging within academic circles that track the equity markets is whether this is truly a secular bull market or a cyclical bull market within the secular bear market that began in 2000. At this juncture, that is almost impossible to know.
This current market and the run from 2009 exhibit hallmarks of both flavors. Gaining a perspective on secular vs. cyclical bull markets, however, gives the greatest insight into why traders are so anxious right now.
The collective hand wringing is not just about global growth, divergent monetary policies, or a U.S. presidential election, but also about whether this seven-year run is secular or cyclical. Day to day, week to week, and month to month, the markets have been dealing with successes and failures, while contending with numerous inflection points in an effort to figure this out. If it's secular, then investors should be enjoying these pullbacks to pick up bargains. If it's cyclical, then it will be a case of “and back again.”
No matter which way you lean in your assessment of secular or cyclical, the lesson is this: Pay attention, stay alert, and remain completely nimble. This year is shaping up to be a defining one.