“Common sense is not so common.”
~ Voltaire, French Philosopher
Question: Is this the longest bull market in history?
Answer: That depends on how a bull market is defined. This particular run began on March 9, 2009 and at the time this is being written, financial markets are up for nine and one-half years. The most agreed upon definition of a bull market is a period of time when financial markets are up 20 percent or more, and conversely, a bear market occurs when stock prices drop by the same amount.
The debate begins when talking about the time frame that this takes place. For instance, what if we drop 20 percent in one or two weeks and climb back up? The point-to-point measurement and the duration bring another dimension to the designations. As a refresher, the terms bull and bear refer to how the two animals attack their prey; bulls attack by charging and assault the victim with horns lunging upward, while bears claw at their quarry in a downward fashion.
Depending on how a bull market is defined, the eighteen years between 1982 and 2000 could be classified as a secular bull market that happened to include the short-lived Crash of 1987 and 1998 Asian Financial Crisis. Markets fell more than 20 percent during each event, yet were able to close higher by year-end. So, was 1982-2000 an 18-year bull market or not? Technically, the 1982-2000 secular bull may not have officially met the criteria based on the 20% metric used to define bear markets.
By adding the term secular to the definition of long-term becomes an indefinite and unspecified duration. Micromanaging definitions may seem counterproductive. Bull and bear designations may be semantics, yet labels can be dangerous, powerful and self-fulfilling prophecies when given to short-term trends or anomalies. For instance, Facebook reached an all-time high on July 25, 2018 and then one day later was down 20%. Some media investment professionals mistakenly christened this as the beginning a bear market.
If the current bull market began in March 2009 after the Great Financial Crash (GFC) of 2008, we’re nine and one-half years into this cycle. With September 15th having been the tenth anniversary of Lehman Brothers folding, we’re flooded with media coverage, bad memories and heightened emotions.
To put things into perspective, let’s take a quick look at the 25 years between 1982 and 2008. We experienced regional downturns and two minor recessions. Former Fed Chairmen Alan Greenspan and Ben Bernanke were able to moderate economic activity with monetary policy. At the same time, technological advancements like the internet improved business communication systems and provide employment opportunities. According to the Bureau for Labor Statistics, unemployment in 1982 was 9.7% and fell to 5.8% in 2008. For the same timeframe, homeownership rates grew from 64.8% to 67.8% reaching a high of 69.1% in 2005.
This helped add to increases in property values increased providing many homeowners the opportunity to use their homes as ATMs. The term NINJA (no income, no job, and no assets) described a popular type of loan. The increase in consumer spending was based on nothing more than appraised valuations of homes, not authentic economic growth.
There’s a saying that debt doesn’t matter until it does. Debt became an immense problem when housing prices began to reflect the true value of what someone would pay for the property. Financial institutions had to adjust their books using the decreased valuations for the collateral they held on the loans.
Eventually ledgers must be tallied. During the GFC of 2008, Fortune magazine stated that on March 31, 2008 Bear Stearns’ debt-to-equity ratio was 35-to-1, which is frighteningly high. This easily explains their downfall and fire-sale takeover by JP Morgan. A domino effect began and our financial system was seizing like an engine starved for oil. Individuals and small businesses were particularly hard hit when bank credit froze. This was the beginning of a bear market that changed direction on March 9, 2009. Because of this, the leverage ratios of financial institutions are now closely monitored and regulated by the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC).
The bull market that began March 9, 2009 is still intact. We know the causal factors for the GFC of 2008 and for that matter the Dot-Com bust of 2000. Excess, speculation and hype were obvious and ignored. This contributed to both bubbles rather than real sustainable earnings and wage growth.
Are we still in a bull market although we’ve seen drops of over 20 percent? Currently, there just aren’t enough signs that the secular bull market is ending. That’s why focusing on economic trends, individual companies and specific sectors may be more productive than following the heard. Is this the longest bull market? That depends. Stay focused and plan accordingly.
All investments are subject to risk. The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time. There is no assurance that any investment strategy will be successful. References to dates and market movement Andrew Adams, CFA, CMT Senior Research Associate Raymond James.
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This article is provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. Call or email Darcie at 239-389-1041 or firstname.lastname@example.org with questions or suggestions for future columns. Visit her website: www.raymondjames.com/Darcie.