Where are We Within the Long-Term Bull Market

The market bottomed in 2009 and finally broke out to a new all-time high in 2013. There was a disruption in 2015 and early 2016, a bigger one in 2018 and then a massive one just a couple months ago.

Where does the market currently sit, using history as a loose guide? Let’s discuss.

I am operating under the belief the market is closer to the beginning of a bull market than the end.

Looking at a Dow chart going back 120 years reveals bull markets lasting 15-20 years followed by consolidation periods lasting 15-20 years. The bull runs push the indexes up several hundred percent while the bear markets are wide-ranging and characterized by big drops and big rallies. There are disruptions during the bull markets, but the underlying health always prevails.

As an example, the bull run from the early 80’s until 2000 lasted approx. 18 years and was followed by a wide range lasting until 2013. During the uptrend, there were recessions in ’81-’82, the early 90’s and the mid 90’s. The crash in 1987 was a big disruption, and there was a sudden and stiff drop in the late 90’s due to the Russian financial crisis, the Asian financial crisis and the Long Term Capital collapse. Through it all, the S&P rallied from 100 to 1500. During the wide-ranging consolidation period, the S&P got cut in half (Dot Com Bubble) and then rallied back to its high before getting cut in half again (Financial Crisis). Then in 2013 the S&P broke out to a new high.

This has played out numerous times the last 120 years. Big bull market lasting 15-20 years have been followed by a rest, which at the time was super scary, but in hindsight has always been just a wide-ranging consolidation pattern within a bigger bull market.

I am operating under the belief that a new bull market started in 2013 – when the S&P broke out to a new all-time high – and if this bull market lasts 15-20 years like previous bull markets, we are not even halfway through. Even in a worst-case scenario, rallying another 10 years is well within the historical norms.

This is my framework. This is how I view the big picture. There is so much technology that is still relatively new that it’s not hard to see what will fuel the market higher. Everything is being digitized. Everything is moving to the cloud. Artificial intelligence. So many developments in healthcare. There’s simply too much innovation going on to be a pessimist.

But like the 80’s and 90’s bull market, there will be disruptions along the way. The coronavirus has been one, not that much different than the ’87 crash. There will be others, but I believe corrections – even stiff ones lasting several months – should be viewed as gifts. They’ll give us a chance to buy quality names at discount prices.

You can argue we’re already due for another correction. Many tech stocks, particularly software companies, have posted massive gains and have gotten ahead of themselves. There’s probably some truth to this, but keep in mind the best investments have been overvalued companies that have stayed overvalue. AMZN has been overvalued for its entire life as a publicly traded company. So has NFLX. Same with Google. And Facebook. And Tesla.

It’s cliché to say “overvalued can stay overvalued,” but it’s true. And not just for months or quarters, but for decades. The best long term investments don’t show up on a value investor’s radar because the best cost too much. But it’s better to buy an expensive company that’s growing than an appropriately-valued company that’s steady.

So overvalued is not a reason to abandon the market. If you sell when stocks are overvalued, you would have missed some of the biggest runs in history.

The more likely confluence of events that fuels a euphoric surge and subsequent hard drop is prevalence of younger and much less experienced traders. Some of the recent moves remind me of the late 90’s. The combination of high unemployment, stimulus checks and $0 commissions have led to several million new brokerage accounts being opened the last few months. Naive traders who think their iPhones are ATM machines have been conditioned to believe the market not only only goes up, but goes up a lot. What is typically a good year is playing out in weeks.

My mind goes in two directions when I witness what’s happening. 1) This can’t end well, but 2) Don’t be a grumpy old fart; stay involved.

Eventually the music will stop, and there’ll be many less chairs available to sit on. But in the mean time you can’t be in a perpetual state of denial and not get involved.

This somewhat reminds me of Stanley Druckenmiller’s story. He was a young trader/analyst working at an older firm with mostly middle aged and older traders. The market had been crappy for many years. Despite Druck’s youth and lack of experience, he was made head trader. Why? Because the guy in charge knew that when the market turned, the older traders, having been worn down by the crappy market, would not be able to rid themselves of their baggage and take advantage of the new trend. Druck, on the other hand, being young, much less experienced and carrying virtually no baggage would have no qualms aggressively putting money to work. The boss’s plan worked. The market turned, and Druck make a killing for the firm.

When I hear stories of young “Robinhood” traders kicking butt, I smile and remind myself I need to be more like them and less like the grumpy old farts that have been callused and hardened by the two 50% corrections of the 2000’s…while keeping in mind when the music stops, exit quickly.

If the old farts in 1987 thought the 240% gain off the 1982 bottom could not possibly go farther, and they used Black Monday as vindication for their pessimism and warnings, they missed a several hundred percent move over the following 10+ years.

If the old farts in 1998 thought the market gains were ridiculous and unsustainable, and they used the 23% correction as vindication for not being all-in, they missed a nearly-70% run over the following 18 months.

If the old farts in 2020 think the market is way overpriced and can’t possibly go much further in the face of the highest unemployment rate since the Great Depression, they may miss [fill in the blank].

I don’t know what they’ll miss. Nobody does. But as I stated above, we might not be even halfway through a 15-20 year bull market.

There will be disruptions. There will be stiff corrections. But if you randomly guess a top based on what doesn’t make sense, you could miss a 50%, 12-month run. Overvalued can stay overvalued. Doesn’t make sense can continue to not make sense.

If you’ve been hardened by the 50% draw downs (Dot Com & Financial Crisis) and can’t get yourself to have more exposure, look at the younger carefree traders for inspiration, while keeping an exit in mind. And if you’re younger, I’d tell you to make as much freaking money as you possibly can, but know that this isn’t normal. When the music stops, sell. Period. Sell everything. Don’t argue or bargain or negotiate for more. Just get the F#@k out.

Jason Leavitt
Jason@leavittbrothers.com

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5 thoughts on “Where are We Within the Long-Term Bull Market

  1. Thanks Jason! I’m definitely in the old fart camp and having a tough time being bullish at current prices. I remember all of the previous crises and with all of them I was a little more optimistic. This just feels different and as if entire industries like airlines, hotels, restaurants, casinos, commercial real estate, and brick and mortar retail are never going to recover. But of course that is what myself and all of the other bears think and we have all been wrong for the last few hundred points on the S&P 500 so thanks for challenging us to reexamine our assumptions.

  2. We know the market will continue to make new highs at long as Powell continues to print more money and buy bad debt, It’s cliché to say, you can’t fight the fed, but is so true. But a lot of people don’t realize, he was doing it in November even before the correction. The Market might be doing well, but the economy is really not, food for thought.

  3. Jason:
    I agree with you about the old fart even though I don’t like to say that
    out loud. I am bullish at this point and intend to stay bullish as long as
    the trend is up. My problem has always been to stay to long attempting
    to milk another 2 or 3 points out of the trend. It has cost me a few times,
    a slow learner. I always enjoy each of your post, it helps me keep my
    head on straight.

  4. I’d like to enjoy my old fart years quietly with tBonds and CDs but this market keeps me dancing and my knees hurt. But the trend alleviates a lot of pain.

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