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Happy 8th Birthday, Mr. Bull

Happy 8th Birthday, Mr. Bull

Ron Kelemen - Wednesday, March 08, 2017

March 9 marks the 8th anniversary of our current bull market, three years longer than typical.  This has been our second longest bull and our third highest performing.  So what's next?  Are we on the verge of a correction and/or a bear market?
We are always on the verge of a pull-back or a correction of 5-10%.  They happen quite frequently in any given year.  For us to be entering a bear market, more things must fall in place over a period of weeks.  According to James Stack, a market historian and President of InvesTech Research, seven indicators can serve as warning flags of a bear market.  The more indicators the more likely a bear market.

So far, the only indicator for concern now is extreme optimism.  The other six are: 1) an unfriendly Federal Reserve, 2) weak economic data, 3) falling consumer confidence, 4) weakness in leading stocks, 5) fewer stocks leading a rally, and 6) more stocks going down than up.  These deserve monitoring, but they aren't in play yet. 

This bull market has been driven by low interest rates and an improving economy.  More recently, it is also being driven about optimism about tax cuts, infrastructure and defense spending, and a reduction in regulations.  Disappointments about these policy ideas not getting passed could derail this bull market.  Likewise, as history taught us at the start of the Great Depression in the 1930s, talk or actual policies that raise tariffs and/or restrict free trade could trigger a recession and a bear market.

As nice as this bull has been, it hasn’t been a smooth ride.  That brings us to a question.  Which investment would you rather have?  Investment A, or investment B? 

INVESTMENT A


INVESTMENT B



If you’re like most people, you’d probably want Investment B because it doesn’t seem very volatile and it had a very nice increase in value.  Actually, though, both “investments” are the same.  This is a chart of the S&P 500 from Yahoo Finance from March 9, 2009 through March 7, 2017.  Investment A is an important part of Investment B, covering the period of December 15 2015 to February 16, 2016, just one year ago.  It was a stressful time for many, and we had to do a lot of "hand holding" at that time.  Those who rode out the volatility reaped the benefits. Those who rode it out but didn’t check the headlines and their account values daily also achieved the same results, but without all the anxiety and stress.  

INVESTMENTS A & B COMBINED

We can’t control the markets, nor can anyone else.  Even the highly successful Warren Buffet says he doesn’t know what the markets are going to do over the short run.  “But over the long run, I do know that they tend to go up.”  Happy birthday, Mr. Bull. 

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