8/24/2018 Weekly Update: Stock Market Record, Does it Even Really Matter?
by Zach Marsh on Aug 24, 2018
S&P 500 +0.89%
10 Year Treasury +0.41%
Weekly Update: Stock Market Record, Does it Even Really Matter?
The headline news this week is that the current stock market rally has now become the longest running bull market in history. What, you thought I was going to mention the news about guilty verdicts and guilty pleas and a presidency on the brink of disaster? Ok, sorry the second biggest news item this week was the stock market’s record run.
For those who weren’t paying attention, on Wednesday the stock market “officially” set the record for the longest consecutive stretch without the interruption of a bear market. While this news is certainly noteworthy, the cynic in me finds reason to question the integrity of the record. Like Maris hitting 61 homers in 162 games vs 154 games for Ruth, or heaven forbid the cloud hanging over McGwire and Bonds, this record raises some questions. First of all, the definition, according to those who measure these things, of a bear market is a decline in the S&P 500 Index of greater than 20%. The gray area is about how we mark the top and the bottom of a market decline. Namely, do we measure the top to bottom based upon market closing levels or intraday highs and lows. If one chooses intraday levels to measure declines, then this current bull market began on October 4, 2011, not March 9, 2009.
In 2011, as Europe teetered on the brink of collapse, the US stock market declined from an intraday high of 1370.58 on May 2nd to an intraday low of 1074.77 on October 4th, or a 21.5% decline. This clearly meets the definition of bear market. If we use intraday levels to market bear markets then the longest running bull market was between October 11, 1990 and July 20, 1998, roughly 2,837 days. Currently, we are on day number 2,514. Not quite there.
If instead we insisted upon closing levels, it would seem the 90’s rally gets the shaft once again. The 1990 “bear market,” declined from a high of 369.78 to 295.46 in a little over a month. This marked a decline of just 20.01%, just barely reaching bear market territory. It seems as if we could really go around in circles over whether we have reached a milestone or not. For me it all seems rather trivial, sorry for wasting your time, because what really matters most is not the depth of the decline as much as it is the length of time it takes to reach a bottom and recover. Twenty percent declines are not fun, but more destructive to wealth is the time it takes to recover. The bear market beginning in 1973, top to bottom, lasted roughly 1.5 years, but it took the market until 1982 until it permanently eclipsed the 1973 highs. In my book, that is a bear market. Quibbling over whether a market declined 19.5% or 20.01% if it only remained below the previous highs for 7 or 8 months is pretty meaningless. The 1990’s bull market ended with the collapse of technology stocks in 2000. The market never, truly recovered those highs until 2013, that was painful. As it stands, this current bull market remains one of the least appreciated market runs. Aside from the run up in January there has been little signs of euphoria in the market price action. This lack of euphoria can bode well for the rally to continue on for awhile longer.
Thanks for reading,
Zach and Dave
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