Bull Markets: Longer and Stronger

Key Takeaways:

  • Bull markets are longer and stronger than bear markets on average.
  • Exiting the stock market is a serious decision, and could mean missing out on important portfolio returns.
  • Understanding investor sentiment can be key to understanding the market cycle.

How long do bull markets last? What is the longest bull market to occur? If you are in a current bull market, should you be concerned about when the end will occur? Investors may worry about these questions when considering when and how to invest. The length of the current bull market that started on March 9, 2009 may particularly be on investor’s minds. But a market cycle’s age should not be the determining factor of whether or not you are invested. Bull markets do not stop at a predetermined old age. 

What Are Bull and Bear Market Characteristics?

You can expect stock market prices to climb during bull markets. On the other hand, in a bear market some fundamental factors drive stock prices downward by 20% or more over an extended period.

Identifying when a bear market has begun can be difficult. We believe bear markets can start in one of two ways—the “wall of worry” or the “wallop”. The “wall of worry” occurs when investor sentiment reaches unfounded euphoria and reality can no longer meet expectations. The “wallop” occurs when a widely unforeseen negative happens that is large enough to knock several percentage points off global GDP—in 2019 terms that would require several trillion dollars.

What does market euphoria look like? At the depths of a bear, investor pessimism peaks. As the stock market recovers, sentiment can be slow to warm up. But as the new bull market progresses, fear starts to dissipate and new investors start to buy in. Sentiment can start to outpace the reality of stock market fundamentals. When worries disappear, the absence of fear can suggest the bull’s euphoric top is near.

Market cycles have varying lengths—but the averages are important to note. Consider that the S&P 500’s average annualized return from 1925-2018 is approximately 10%.[i] This number includes all of the downturns. How is this average annualized return a positive number? Bull markets are longer and stronger than bear markets on average. And no matter how bad a bear market is, a bull market follows.

The Length of Stock Market Cycles

There is no predetermined limit to a market cycle’s age, and market cycles can have significantly varying lengths and returns. For example, the bear market ending in March 2009 had a larger negative cumulative return than other bears in recent history. The 2008 financial crisis and the stock market downturn ending on March 9, 2009 may still weigh heavily on investor’s minds due to the severity. But focusing on just one example of bear market returns is not the most important information for long-term investment planning. Consider that bull markets tend to be longer—and stronger—than bear markets

  • The last 11 S&P bull markets (not including the current one that started in March 2009) lasted an average of 57 months and had an average cumulative return of 149%.[ii]
  • The last 11 S&P bear markets lasted an average of 16 months and had an average cumulative return of -34%.[iii]

How does this affect the average investor? This means if you miss out on investing during bull markets, you could be missing out on important returns. Stocks in a bull market do not rise a uniformly straight line—there can be drops, volatility or corrections along the way. But enduring the volatility and remaining invested during the full bull market cycle can result in significant long-term growth.

This also means that exiting the market or waiting on the sidelines before investing can be dangerous. Missing out on part of a bull can mean missing out on critical returns for your portfolio. Remember that staying invested in the market through bulls and bears can still capture overall growth due to the stronger average growth of bull markets.

How We Can Help

Investing during the longest bull market in history may be difficult to manage on your own. We may be able help you navigate the markets and answer any questions you may have along the way. Contact us today to learn more.

 

[i] Source: Global Financial Data, Inc., as of 1/9/2019. S&P 500 Total Return Index, 12/31/1925 – 12/31/2018.

[ii] Source: FactSet, Global Financial Data, Inc., as of 3/13/2019. S&P 500 Index Price Level from 5/29/1946–12/30/2013.

[iii] Source: FactSet, Global Financial Data, Inc., as of 3/13/2019. S&P 500 Index Price Level from 5/29/1946–12/30/2013.)

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Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations.