Nothing old about this bull market
I keep reading how this bull market is the second-longest since the Second World War. Lots and lots of articles, comments, observations, tweets, blog posts and on and on are running with this idea. The assertion has been made by both amateurs as well as some fairly sophisticated types who should know better.
But there are several problems with these claims. First, they simply are wrong about the length of this bull market. Second, whatever methodology the authors rely on to reach their errant conclusions are either unknown or deeply flawed. And third, they smack of sensationalism designed to draw readers, clicks and hits rather than to offer useful insight.
Let’s see if we can unpack some of the issues here and determine if this is indeed the second-longest bull market in history.
Let’s begin, as we have pointed out before, by noting there is nothing magical about a 20 per cent move in the markets as a signifier of either a bull or a bear market. That figure is simply our mental default setting, based on the number of fingers and toes our DNA is programmed to create. I have never paid it much attention, and neither should you.
Regardless, from May to October 2011, the Standard & Poor’s 500 Index fell 21.6 per cent. Some folks like to point out that based on closing prices rather than intraday moves, it only fell 19.4 per cent, so by that yardstick a bear market never registered. This raises our second question: if 20 per cent is the magic number, why measure the decline based on closing prices? It seems as if the only reason to do so is to avoid tagging that decline with the magic 20 per cent number.
During that same May-October period, however, the Russell 2000 Index fell 30.7 per cent. To claim this wasn’t a short-term bear market in the context of a long-term secular bull market seems like a stretch if you’re using the 20 per cent definition.
Third, consider the period running from mid-2015 to early 2016. My head of research, Michael Batnick, argues that this “absolutely was a bear market”. Here are the peak-to-trough numbers from that period:
Median S&P 500 stock down 25 per cent (the index itself fell 15 per cent); Russell 2000 down 27 per cent; Japan stocks down 29 per cent; Dow Jones Transportation Average down 32 per cent; emerging-market stocks down 40 per cent; Chinese stocks down 49 per cent; small-cap biotech stocks down 51 per cent; crude oil down 76 per cent.
New York Stock Exchange new 52-week lows were at their highest point since November 2008; 80 per cent of S&P 500 stocks fell below their 200-day moving average.
This points to another issue: relying on one index, even the S&P 500, isn’t necessarily the best measure of bear markets. Although it surely is a widely held, broad index of some of the largest US companies, it isn’t imbued with any special ability to designate bull or bear markets. Looking at the broader picture of markets provides much more insight than any single index.
However, for those of you who insist that the present bull market began in March 2009 and thus is the second longest, then you must also acknowledge that the prior bull market, the one you have been describing as running from 1982 to 2000, actually began in 1974. And the one before that began in 1932.
As we noted near the eighth anniversary of the March 2009 stock-market lows, you don’t measure the start of a bull market from its bear-market lows. This would be akin to measuring your own age from your date of conception.
So what is the length of this bull market?
To me, it’s 4½ years old. I have argued for some time now that the best starting date of a new bull market is when the prior bull-market highs are eclipsed. That is how we get a date like 1982 as the start of the last secular long-term bull market.
And it is also how I get to March 2013 as the start date of this bull market, when the S&P 500 topped the earlier high of 1,565 set in October 2007.
To those who wish to describe the length of a bull market, I make this one simple plea: state what your methodology is, outline the thinking behind your approach, and then be consistent in applying it.
Anything short of that is simply repeating myths and making unproven assertions. Investors — and your readers — deserve better.
Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He is the author of Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy and blogs at the Big Picture
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