The Bull Turns Four

04/29/2013 9:00 am EST


John Reese

Founder and CEO, And Validea Capital Management

A walk through history merely shows us that bull and bear markets are very diverse, leaving market timers empty-handed, says John Reese of Validea Hot List.

The bull market that began in March 2009 has hit its four-year anniversary. Since then, the S&P 500 has eclipsed its pre-Great Recession/Financial Crisis high, closing in on the 1,600 mark.

All of that, plus the seemingly never ending concerns about the global economy, have many wondering whether the bull is nearing its final days. After all, four years does sound like a long time, particularly given the myriad of troubles the world has been confronting lately—the European debt crisis, US budget sequestration, and potential housing market troubles in China.

To get an idea of where we stand in historical terms, I recently looked back at a number of past bull markets (and bears) to get an idea of how this bull stacks up against others.

I looked back at all of the bull markets since 1957, the year that the S&P 500 benchmark came into its current form. The current bull is the tenth bull market since then. For the previous nine, the average duration was right at 48 months. Five of the nine lasted longer than four years, with the longest being the 1990-2000 bull market, which lasted 115 months.

During those past nine bulls, the S&P gained an average of 165.7%. As of afternoon trading on April 11, the current bull was up 135.9%. (By comparison, bear markets tend to be much shorter in duration and smaller in magnitude than bulls. The average of the last ten bears going back to 1956 was just 15 months, and involved a loss of 34.3%.)

The current bull is thus by no means atypical in terms of how long it has lasted, nor is it atypical in terms of the overall gains it has produced. It has, however, proceeded more rapidly than many post-1956 bulls.

For the five previous bulls that lasted at least four years, the average gain through the end of Year 4 was 81.2%. Through its first four years, the current bull was up 129.3%. Still, that's not the most rapid rise—the 1982-1987 bull gained 137.6% in its first four years. So again, nothing unheard of with this bull run.

With so many factors affecting stocks at any given time, getting the timing right on bull and bear markets is incredibly hard, if not impossible. Just because a bull has gone on for four or five years or six years, that doesn't mean it's due for an end.

If you jumped out of stocks at the four-year mark of the 1974-1980 bull market, you'd have missed out on gains of nearly 40% more over the next two years. Had you jumped out at the four-year mark of the 1990-2000 bull, you'd have done even more damage to your portfolio—the market gained another 230% before the bull ended.

At the end of the day, given that bull markets tend to last longer and involve far greater gains than bear markets, an investor's best move is more often than not just staying the course and sticking to a long-term strategy through both bears and bulls.

Yes, that means there will be some rough periods. But historically, the market has followed every bear with a bull—even after the Great Recession and financial crisis a few years ago, despite the fact that many believed financial Armageddon was upon us and stocks were "dead."

Subscribe to Validea Hot List here...
Related Articles:

Stocks: Good News and Bad News

Anticipation 2013

Is Enthusiasm for Stocks Waning?

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on MARKETS

Keyword Image
Honda: A Shift to Electric
2 hours ago

Honda (HMC) is the third largest automaker in Japan and the eighth largest worldwide. It produced ju...