Oh, how we love records! In sports and money, records are our obsession and our aspiration. The record investors were talking about in the third week of August 2018 was whether this bull market ranked as the longest in history. Many people were ready to crown it as such, and good arguments were supporting that claim. Yet, there is also a pretty valid argument against it, especially in the arena of technical analysis. Let’s explore both sides.
First, an update: Whatever your conclusions about the validity of the record, that bull market came to a screeching halt on March 11, 2020, when the first wave of the COVID-19 pandemic swept the markets right into bear territory, but only for 33 days. A new bull market then began. Stay tuned.
Defining a Bull Market
First, let’s agree on the definition of a bull market. That’s our specialty, so allow us to use our own definition: A bull market is an overall increase in stock prices rise by 20%, usually after a drop of 20% and before a second 20% decline.
Some may object to that definition, and there is merit to their arguments. Stocks may rise 20% from their lows, but what if those lows fall as low as 50%, as they did during the bear market of 1990? We’ll entertain that debate at another time, but for now, we're going to stick with our 20% rule of thumb since it is widely accepted if not universally agreed upon.
Bull Market Beginnings
According to many, the current bull market started on March 9, 2009. In the U.S., we were dusting ourselves off from a financial crisis created by a housing market run wild, irresponsible lending and borrowing by banks and other institutions, and a lack of liquidity that left many investors and institutions naked when the tide rolled out.
The Federal Reserve had slashed interest rates and was just beginning its quantitative easing program, buying hundreds of billions of dollars worth of mortgage-backed securities and long-term Treasuries. It was the equivalent of pumping steroids into a patient who had nearly flatlined on the operating table.
We were still in the throngs of the Great Recession, but could finally see the light, eventually emerging from the darkness in June of 2009. If we take March 9, 2009, as the beginning of the current bull market, it has run for 3,453 days as of Aug. 22, 2018, thus surpassing the previous record bull market that ran from October 1990 to March 2000. That one didn't end particularly well, by the way.
This chart from Ryan Detrick of LPL Financial is a nice way of looking at the longest bull since World War II.
As Detrick points out, it has been anything but smooth, with at least one intraday correction of 20% and a 19.4% decline that tiptoed precariously close to the line in October 2011.
We came pretty close to the end between May 2015 and February 2016, when the median S&P 500 stock fell more than 25% peak-to-trough. It may have felt bearish, particularly for sectors like energy and financials, but according to Detrick and many others, it technically wasn't.
The Case Against an Uninterrupted Bull
Let’s take the counter-argument presented by JC Parets, founder of AllStarCharts.com and our course instructor for Technical Analysis at the Investopedia Academy. JC addressed what he deems a fallacy in a blog post from March 2017, when we were breaking out the pom-poms for what many people were celebrating as the 8th anniversary of the current bull.
“… Bear markets are an extended period of stock index declines where over time the majority of stocks in that index participate to the downside. In other words, this is a market of stocks, not just a stock market. In 2011, almost 70% of stocks in the S&P500 had corrected over 20% from their peaks. Also, by the beginning of 2016, 63% of stocks in the S&P500 had corrected by over 20% from their top. So twice, a majority of components in the S&P500 had corrected dramatically, arguably entering bear markets. To suggest that these periods were bull markets is not only incorrect, but I would argue is an irresponsible statement to make by anyone who experienced trading in those markets.”
Here is the chart JC used to illustrate that point, which was provided to him by Todd Sohn at Strategas:
JC is also a proponent of looking at the S&P 500 Equal-Weight Index. This treats each component of the index the same, so it’s not skewed by an Amazon (AMZN) or an Apple (AAPL) to the upside, or a GE (GE) to the downside.
By that measure, the S&P 500 was in a bear market for several months in 2011, as the Equal-Weight Index fell 25 percent, peak-to-trough.
It's All in the Returns
It’s hard to argue with this logic, but it also presents one of those classic conundrums in investing in which returns, performance, and records are all in the eyes of the beholder, or holder, we should say. You can shift the prism in multiple ways and draw your own conclusions that align with your beliefs and education as an investor.
We don’t intend to straighten this argument out once and for all. It will rage on all week and beyond, into the next bear and bull market cycles. That’s the thing about records … they come with a lot of opinions.
What we should focus on, and what is arguably more important to all investors, is performance. If we take Detrick’s position that this is indeed the longest bull market in history, let’s focus on returns. I think all of us would take performance over duration any day. Through that lens, and it’s a lens we can all see clearly through, the current bull market has returned just over 320%, while the bull market of the 1990s gained nearly 417%. To break that record would really be an achievement worth celebrating.