By Michal Emory on October 13, 2017
First, the common accepted term for a bull or bear market is an advance (decline) of greater than 20%. Have you ever stopped to ask why 20%? Why not 18%? Or 22%? Other than being a round number with a “0”, why is 20% special? Why use the closing price? Stocks trade throughout the day and the closing price is almost never a price that we can sell a stock for since the market fluctuates throughout the day and the opening price is often not the same as the closing price.
Second, I believe that we have had not one, but two bear markets since the S&P 500 bottomed in March 2009. The first came in 2011. From April 29, 2011 to October 3, 2011, on a closing basis the S&P 500 was down 19.4%. Does that 0.6% really make you feel that much better? With a starting amount of $100,000, that is only a $600 difference.
But if we look at the S&P 500 from an intraday basis, then it was down 21.6% from its high. The S&P 500 Equal Weight Index (this index removes the large cap bias of the S&P 500) was down 23.2% (and even more on an intraday basis) on a closing basis from May 10, 2011 to October 3, 2011. The Russell 2000 Index (small cap stocks) was down 29.6% on a closing basis from April 29, 2011 to October 3, 2011.
The second bear market was from mid-2015 to February 2016. While the S&P 500 was down just 14.2% during this time, the S&P 500 Equal Weight Index was down 18% and the median stock was down 25%. The Russell 2000 was down 26.4% over this time. There were also 1259 more new Lows than new Highs in January 2016.
Add into that the drop in the Dow Jones Transportation Average, the plummet in Emerging Market stocks, and the collapse in oil, and it’s clear that this period had all the markings of a bear market save that “magical” 20% number for the S&P 500.
Now that we have answered the question of whether we are in the second longest bull market, let us talk about why it should not be driving investment decisions. With the stock market, there are copious predictions of impending doom. The legendary investor Jim Rogers has been claiming since 2011 that a crash is imminent.
Bull markets come and go. Some are gone in a flash and some seem like they go on forever. I do not claim to know when this current bull market will end. It could be next week or it could be in 10 years. But I do know that by being diligent with your asset allocation and security selections, we can create a portfolio that will help enable you to reach your financial goals.
Your portfolio is designed to be effective in a variety of market conditions, and nimble enough to make changes as the need arises. This does not mean that it will “work” 100% of the time but that over the full market cycle, it will help you achieve your financial goals. The right investment strategy for you is the strategy that you can keep in good times and bad and that helps you reach your financial goals. This leads to a blog post I will have later this month about how successful investing is more of a behavioral exercise than an analytical one.
Till then, thank you once again for entrusting us to help you reach your financial goals.
Michal Emory, CFA is The Trust Company's Chief Investment Officer, based in Manhattan, KS. Read more about Michal here.