Bull Market: How Long Can this Last?

Records are meant to be broken. This week investors celebrated as this bull market officially became the longest in history. Therefore, I feel compelled to update and rerun this article from early last year, which is full of important insights and lessons that are every bit as true today as when I first wrote it.

Bull market could last a while longer:

People have been asking me for the past few years: “How long can this bull market last?” The answer is: a while longer. Usually, investors ask this question because they are trying to time the market. Bad idea. The real question they are asking is: “Should I get out of the market now?” That is unless they are already out of the market, in which case, they are waiting/hoping for a crash so they can get back in at lower prices. Unfortunately, many people have been sitting on the sidelines waiting for a crash for several years while the market has continued to defy them. Record levels of cash are currently sitting around uninvested. Some of that cash comes off the sidelines and props the market right back up every time we have a slight downturn.

There have been four different 10% corrections during the current bull market, but they did not last very long before the market snapped right back. The last time this happened was earlier this year when the S&P 500 dropped by 10.1% from late January to early February 2018.

Bull Market: How Long Can this Last?

Aren’t we due for a recession?

By historical standards, yes. The stock market tends to follow an uptrend (bull market) for a few years before a 20% decline breaks the cycle. The current bull market is 9 ½ years old, but the average duration is under five. The current bull market began on March 9, 2009. In other words, this bull is no spring chicken.

The other factor that makes it seem like this can’t continue is the job market. The unemployment rate is at 3.8%, a 30-year low. Unemployment rates do not typically stay this low for long, before a recession usually comes.

The other factor is stocks are not cheap. They are trading above their historical valuations, and so is just about every major investible asset class (e.g., bonds, commercial real estate). The longest bull market, prior to this, one was from 1990–2000 and was ended by the dot-com crash. That bull market had greater price appreciation and stocks became significantly more overvalued than they are today.

Why has the market been so resilient?

It is impossible to say with certainty why the market has been so resilient and exhibited relatively low volatility. However, it may be a blessing in disguise that the economic recovery over the past 9 ½ years has been one of the weakest in history. Slow and steady is more boring than boom and bust, but I prefer it. The big unknown is what external factor will cause the bust.

Bull Market: How Long Can this Last?

Sam Stovall, a well-known investment strategist, pointed out recently that “Bull markets don’t die of old age, they die of fright. And what they are most afraid of is recession.” There aren’t many signs of a recession right now, so the good times may continue to roll for a while longer.

In 2000-2002, the dot com bust caused a recession and tanked the market. In 2007-2009, it was the overheated housing market/subprime lending. Those were both big markets with big imbalances. For example, $7 trillion of household wealth disappeared from household balance sheets when the housing bubble burst. The warning signs or mini-recessions that we are starting to see in some industries do not have nearly that type of impact.

Eventually, however, this bull market will come to an end, and we will all miss it until the next one begins…likely just a year or two later.

Have a great week.