Should We Care About the Longest Bull Market?

Posted on August 27, 2018 by Gemmer Asset

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If you follow the financial press it is hard not to notice all the noise around the duration of this bull market. The current rally is now officially the longest bull market in post-war history. We are finding it is hard to get too worked up about this.

 

First, the news. Last Wednesday the S&P set the record for the longest number of days without a 20% correction. A 20% decline is arbitrarily defined as a bear market, and we haven’t been treated to one of them since early 2009. Since the low on March 9th, 2009 this advance has clocked in at 3,456 days as of today. The previous bull run was set between October 1990 and March 2000. For what it is worth, we still lag behind the 1990-2000 run in terms of price gains, as you can see below.

 

 

This seems like one of those Rorschach Tests that tells you more about the observer than anything else.

 

 

Some people see bad news in events like this. Trees don’t grow to the sky after all. Others think past performance predicts future returns. Buy what’s working. All I ever see are butterflies!!

 

Why is this debate bordering on the absurd? First off, it isn’t like this bull run has been painless. After all, the S&P managed to drop -21.6% on an intra-day basis in 2011. But it doesn’t count by this arbitrary measure because the closing decline was just -19.2%. It sure feels like this should count.

 

And why does any of this even matter? After all, there is really no correlation between the length of a bull run and what happens tomorrow, next month, or next year. Yes, bull markets end. But the duration of a move says very little about its pending demise.

 

And of course bull markets don’t happen in a vacuum. Typically the economy and earnings are also in a bull market at the same time. The market has done well this cycle in large part because earnings have grown dramatically since 2009, as the chart from Ed Yardeni shows below.

 

 

Does the duration of a bull market say anything about the direction of earnings? Not really. Earnings could certainly collapse tomorrow, but it won’t be because ‘old age’ has set in. Bottom line: the ‘longest in history’ debate makes for good headlines, but little else.

 

What will signal an imminent plunge? Maybe when the pundits capitulate and stop predicting doom (I’m kidding – sort of).

 

 

 

 

 

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