As Bull Market Reaches Seven Years Old, It May Still Have Years to Run

Stocks had a rough year in 2015 and face a number of challenges in 2016, including rising interest rates and a strong U.S. dollar. That doesn’t mean we’re not still in a secular bull market* where 2015 is the pause that refreshes before stocks continue grinding higher.

Since bottoming in early 2009, $15 trillion has been restored to share prices as stocks tripled in value over the ensuing 82 months. At 7 years old, some market pundits argue the current bull market is long in the tooth, and if history is any indicator, must inevitably die of old age. Supporting this argument is the fact that no bull market in history has ever exceeded 10 years. This viewpoint, however, ignores the possibility of a longer lasting secular uptrend consisting of larger bull markets and smaller bear markets.

Jeff Rubin, director of research at Birinyi Associates, Inc., disagrees with the “old age” theory. Rubin says, “Bailing out of stocks just because prices have been going up is a standard error of market timing that usually ends up losing money. Just because the rally is some number of months old doesn’t mean it can’t become twice as old,” he said. “It just doesn’t work like that.”

Agreeing with Rubin is Tom Lee at Fundstrat Global Advisors. Lee touts 10-year rolling rates-of-return of U.S. equities that show secular market uptrends can last 20-25 years or more and usually end when a valuation bubble bursts (e.g., technology bubble in 2000, real estate bubble in 2008). Neither Lee nor Rubin see signs of any such bubble today.

MCM analysts subscribe to the secular uptrend theory. The fact is that, since 1930, 67% of the years have been positive for the S&P 500 Index. Selectively buying the dips that occur along the way is a profitable strategy. Statistically, however, the probability of positive S&P 500 Index performance in any single year is not 67%. In a single year, the probabilities underlying a coin flip apply; those odds are always 50-50.

(*Secular, in this context, relates to a long term of indefinite duration.)