Stock Market Nears Longest Bull Run in History

The stock market in the U.S. has staged a truly spectacular turnaround since the financial crisis of 2008, during which stock prices, the financial system and the economy at large all were on the verge of complete collapse. As reckoned by Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, the current bull market is poised to set a new all-time record for longevity before the month of August is over, per a note to clients quoted by MarketWatch. The current bull market generally is considered to have begun on March 9, 2009, when, based on closing prices, the preceding bear market hit bottom, as measured by the S&P 500 Index (SPX).

Stampeding Bull Market

Source: Yahoo Finance; Gains computed through the close on August 12.

Key Technicality

The most widely accepted methodology of measuring a bull market is from the trough, or low point, of the previous bear market to the market's peak, or high point, from which it eventually retreats 20% or more to the next bear market low. Closing prices typically are used in this analysis. The S&P 500 currently is down slightly from its all-time peak close on January 26. As a result, it technically is premature to assume that we are still in a bull market.

The Last 4 Bull Markets, Per Hartnett's Reckoning

Sources: Yardeni Research Inc., Yahoo Finance; Total calendar days, including weekends and holidays, are in the day counts.

* Calculations through August 12, 2018.

The Effect of Rounding

As noted above, the accepted definition of a bear market is a decline of 20% or more. From July 16, 1990 through October 11, 1990 the S&P 500 endured a deep correction that sent it down by 19.92%. Hartnett apparently is rounding this up to a 20% pullback, and thus views this period as a short-lived bear market. Other researchers don't round up the magnitude of that decline, and thus view it as a correction within a longer bull market.

The Last 4 Bull Markets, As Others See Them

Sources: Yardeni Research Inc., Yahoo Finance; Total calendar days, including weekends and holidays, are in the day counts.

* Calculations through August 12, 2018.

Bullish Forces

For the bull market to keep going, it will rely on the persistence of several positive forces. Key among these is continued strong economic growth, and U.S. GDP increased at a brisk 4.1% annualized rate in the second quarter, the fastest clip in nearly four years, per MarketWatch. Propelled in part by economic growth, corporate revenues and profits continue their own upswing. In the second quarter, with 91% of the S&P 500 companies reporting, aggregate sales have grown by 10% year-over-year (YOY) and earnings by 25%, per FactSet Research Systems, with 79% beating earnings estimates and 72% beating sales estimates. Goldman Sachs, meanwhile, observes that "the earnings environment today appears healthy and broad-based," contrary to concerns about narrow market leadership. (For more, see also: The Bullish Case For Tech Stocks: Goldman.)

Bearish Forces

Stock market valuations that remain well above historic norms have been a major source of bearish sentiment since early in 2018, with a growing number of market gurus predicting severe selloffs in the near future, ranging from 20% to 60%. Recently, longtime market watcher Mark Hulbert found eight different indicators of overvaluation or overconfidence in the equity market that are flashing strongly bearish signals right now, including one favored by master investor Warren Buffett. (For more, see also: 'Buffett Indicator' Spells Bad News for Stock investors.)

Meanwhile, the Federal Reserve is in the process of unwinding its massive program of quantitative easing (QE) which injected unprecedented levels of liquidity into the financial markets and the economy, propping up asset prices in the process. Jamie Dimon, the chair and CEO of JPMorgan Chase, is among a number of prominent figures who warn that reversing this program can precipitate a market crash. Dimon also is among those who have voiced concerns that President Trump's moves on tariffs and trade pose a threat to economic growth. (For more, see also: Jamie Dimon: Fed QE Strategy May Cause a Market Panic.)