How Long Will This Bull Market Last?

Nobody can consistently time markets, but investors can lean into trends. And one powerful, current trend is a long-term bull market – oftentimes called a “secular” bull market. This discussion gets a little wonky, but please stick with it.

If you stayed invested through Covid, then you most likely feel good about your account values. I am keenly aware, however, that much of the media will run with the apocalyptic crisis of the day claiming that stocks are priced too high and doomsday lurks around the corner. The media oftentimes deliver the precisely wrong message at precisely the wrong time. How many predictions have you heard since the 2009 Great Recession that the bull market in stocks is about to end?

Bull and Bear Markets Defined

A bull market is one in which stock prices have increased 20% or more – and a bear market is one in which stock prices have declined 20% or more. Most often, people use the S&P 500 to discuss such markets. When referring to these markets, people are typically referring to “cyclical” markets, which tend to be short-term. “Secular” bull and bear markets, however, are based on a longer-term trend rooted in psychology. I believe that the current Secular Bull Market began in March of 2009.[1]

What Drives Secular Bull and Bear Markets?

Psychology, and specifically fear, primarily drives secular markets: fear of loss and fear of missing out (FOMO). Some might call FOMO greed or euphoria. Call it what you want – it’s all the same. When sober thinking stops and risk is disregarded, it’s a sign that FOMO has taken over. We have not seen FOMO/greed/euphoria in stock prices since the late 1990s during the dot.com era.

Think of a secular market as an entire market cycle that is based on these emotions. Lots of things change over the years, but human emotions do not change. It takes a long time to beat out of market participants every ounce of fear or optimism that they acquired over many years.

Consider how Secular Bull Markets typically end. Over time, people grow more comfortable with risk, whether it’s simply buying stock, borrowing money, or starting a new business. Perhaps you would even invest in a friend’s new venture. Everyone begins to participate, including borrowers, lenders, management teams, and investors…in other words, all participants in the economy. As people grow more comfortable with risk, they begin investing in projects that, frankly, should not get funded. It’s a sort of narcissistic optimism, if you will – they see the project as they want it to be, not as it is.

It takes years for FOMO to overcome collective fear and pessimism and vice-versa. You don’t see it month-to-month or even year-to-year. But over 15 to 20 years, it builds…deeply. Eventually, dumb ideas get funded by lenders, money piles into markets by people who are afraid of missing out on a rising stock market, and new investment vehicles come to market that, in normal times, would be unthinkable. At that point, an adult called Capitalism enters the room and shuts down the party.[2] Like a person who eats spoiled food, Capitalism forces these dumb ideas out of the system violently and quickly. People and companies get wiped out and file for bankruptcy while stock prices can decline 40% or more. But it eventually cleanses the system of toxic ideas so we can start over. A new era of pessimism has now begun…in other words, a Secular Bear Market!

Prior Secular Bear Markets

The last two Secular Bear Markets took place from 1968 to 1982 and 2000 to 2009. The S&P 500 topped out at 108.4 in 1968, and it hit 102.4 in 1982. Tough times indeed during the Great Inflation. The S&P 500 topped out at 1527.5 in March of 2000 and bottomed at 676.5 in March of 2009 – even tougher times! Were there “cyclical” bull markets in between? Yes, of course! [3] But it took many years to change the collective mood from FOMO to extreme fear and pessimism. A Secular Bear Market also took place from 1929 to 1949 – prior to the formation of the S&P 500.

Prior Secular Bull Markets

Secular Bull Markets have run from 1949 to 1968, 1982 to 2000, and 2009 to today.

During the 1949 to 1966 run, the S&P 500 started at 13.6 in 1949, and it topped out at 108.4 in 1968. That was nearly an 8x increase from the bottom over 19 years.

During the 1982 to 2000 run, the S&P started at 102.4 in 1982, and it topped out at 1527.5 in 2000. That was nearly a 15x increase from the bottom over 18 years!

As always, there were short-term “cyclical” bear markets that punctuated these Secular Bull Markets. The last Secular Bull Market saw three nearly 20%+ dips in stock prices that happened in 1987, 1990 and 1998. And we have seen similar events since 2009.

The Secular Bull Market prior to these two was the infamous Roaring 1920s that ended in deep despair and ushered in the Great Depression.

Where Are We Today?

If we use March of 2009 as the starting point – and some commentators use a later date – we are only 12 years and currently at a 6.2x increase from the bottom. I wouldn’t be surprised if we hit 10,000 on the S&P 500 in the next six years or so. Plenty of residual fear remains in this market from the 2009 Great Recession – that’s a good indicator that we’re not through with this run. If we top out around 10,000, then that would be consistent with the prior Secular Bull Market of 1982 to 2000. And the economic forces at work today are arguably greater than those from the prior two Secular Bull Markets. Consider the advances in robotics, artificial intelligence, genomics, battery storage, industrial innovation, 3D and 4D printing, cloud computing, and mobile technology. The internet powered the end of last Secular Bull Market and set the stage for the current technological improvements – 7 billion minds are connecting globally and solving all sorts of important problems. That might sound naïve to a pessimist. But remember: pessimists have never been very good stock investors.

Three stages to a Secular Bull Market

As an advisor, I learned a tremendous amount from Jeff Saut while he was the Chief Investment Strategist at Raymond James. He would talk about Secular Bull Markets having three legs: the relief or “wall of worry” leg, the high-powered earnings leg, and the euphoria leg. I believe we are now transitioning from the 2nd to the 3rd leg. The early signs of euphoria have begun: think cryptocurrencies, “SPACs”, and so-called “meme” stocks AMC and Gamestop. Stay tuned, lots more risk-taking likely to come.

The last leg of a bull market can persist for a long time. Alan Greenspan quipped about markets being “irrationally exuberant” in 1994 – six years prior to that Secular Bull Market coming to an end!

Consider that many financial advisors and investors have never seen, much less participated in, a Secular Bull Market. FOMO will feel good to them while it will scream caution to us who have experienced the tough times. Millions of new, young investors apparently began trading stocks during Covid. You’ve most likely heard the term “smart money” – well, perhaps large amounts of “not-so-smart” money are entering the system. This was brought home to me by my 19-year old daughter in late May. We were cooking dinner one night, and she asked, “Dad, remember when you told me not to invest in cryptocurrencies?” I nodded cautiously. She said, “Well, I will have you know that I made $2,500 on dogecoin!” “Really? Have you sold it?” She said, “No…I think it’s going to keep going up.” OMG – and people…I don’t say OMG!! Where did I go wrong? You might say that this is the modern-day equivalent of the shoeshine boy giving stock tips during the last phase of a Secular Bull Market. Either that, or she is on her way to becoming a speculator extraordinaire.

What Could Go Wrong?

Lots of things: war, unimaginable terrorism, a disastrous geopolitical event, or a pathogen that is more deadly than Covid, etc. We call these types of things “black swan” events – something that is unpredictable and devastating. As always, putting your capital behind companies with great ideas to improve our lives always carries risks. Therefore, I would not recommend crafting a reckless investment strategy – it remains prudent to match your investments to the time when you will need the money per a well-constructed financial plan. But you might take comfort that we could have many more years of positive investing returns ahead of us.

Summing it All Up

Be confident in the strength of this raging bull. If history is a guide, we probably have another 4-6 years left – perhaps more. That doesn’t mean we won’t see significant pullbacks in stock prices before it’s over. But I believe this bull has plenty more room to run until we get to collective FOMO. Plenty of fear remains left over in markets from 2009, but I would expect that to dissipate over the coming years.

Bottom Line: Stay patient, stay disciplined, and stay invested!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Past performance is no guarantee of future results.
[1] There is no precise definition of when these secular markets begin and end. For an even more optimistic discussion on the current Secular Bear Market, see https://am.jpmorgan.com/blob-gim/1383635875343/83456/PI-EQT-SECULAR_2020_r2.pdf.
[2] More often than not, the Federal Reserves gets blamed for taking away the party’s punchbowl. Undoubtedly, the Fed can play a role, but remember that the Fed is an easy, political target to blame. The Fed wasn’t formed until 1913, and there were plenty of economic busts prior to that time. Don’t confuse correlation with causation.
[3] There were even great years for stock investors in the 1930s during The Great Depression. The Dow Jones Industrial Average gained 66.7% in 1933, 4.1% in 1934, 38.5% in 1935, and 24.8% in 1936. But the pessimism wasn’t done with the onset of the second wave of the Great Depression in 1937 when the DJIA lost 32.8%. See https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart.