A NEW BULL MARKET?
Excellent data here from Bespoke:
The S&P 500 is now up 51.68% in the 165 calendar days since its March 9th closing low. Below we highlight all “official” bull markets for the S&P 500 since 1927 (a rally of at least 20% that was preceded by a decline of at least 20% is considered a bull market).
Many bears believe the recent gains are just a rally within a longer-term downtrend. But the argument that we’ll eventually head lower than the March lows is becoming a harder and harder sell. One argument the bears use is that we saw a number of similar bear market rallies that were this extreme during the overall 86% decline that the market saw from September 1929 to June 1932. However, as shown in the table below, the current rally is now bigger and longer than any of the rallies seen during the 1929 to 1932 crash. The biggest rally during the ’29 to ’32 period was 46.77% over 148 days. The current rally is up 51.68% over 165 calendar days.
TPC,
There is a big difference between heading lower than the March lows and continuing up from here. One can certainly be bearish and still believe that the March lows will never be broken again (at least not in the near future). I believe you are in that camp. But that doesn’t mean that S&P500 at 750 or 800 will never be seen again, or does it?
One would think that the bull market with no real corrections would be more fragile and more prone to a major crash in the future than one tested along the way.
Most new bull markets have started with a successful retest of the lows that marked the start of the bull market. I think that the key question is not whether the lows will be broken, but whether a retest of those lows (or at least a move below fair value of say 880-900, what was expected but didn’t happen in July) will ever occur or the market will flatline here until fair value rises to the current level or the market will just continue to levitate higher on momentum and hope.
For a lazy buy and hold investor that creates quite a dilema as to what to do now. Continue to buy in slowly (continue to dollar average in), hold what you have but hold off on buying, or sell slowly into rallies (raise cash for an eventual correction)?
The June 1932 bull that doubled the market into September was followed by a decline that brought the market to very close to the June 1932 lows by February 1933. It retraced about 80% of the rise. Such a retest after an 89% overall decline is amazing. That type of retest is what has been expected by many but which is not happening to the surprise of many professional and individual investors alike.
After most people got confortable with the idea that the financial system will not collapse, I believe that most people accepted that the lows were indeed set at 667 in March. The analysts who believe we will go lower are mostly technical analysts (Pretcher from Elliot Wave, etc). At the same time, very few seem to believe we will go significantly higher in the near term. S&P500 1,200 calls are still very cheap.
What is the extent of the range? How low might a correction go (780, 830, 900, 950)? How high might the current momentum take the market (1,050, 1,100, 1,150)?
I would be interested in the economic conditions of these other bull markets vs. the current “new” bull market. I believe the current “new” bull market is driven by unprecedented “free” liquidity.
Has there ever been a previous recession and market decline to which the US government responded so dramatically with fiscal and monetary stimulus as a percentage of GDP? Has the federal government, or their (TARP/TALF-recipient) proxies, ever intervened so much in the stock market to prevent a rally off of recession lows from reversing? The question now is, can this degree of market intervention and manipulation be sustained — or will the bond market eventually wake up to the trillions in US deficit spending ad infinitum. The issue is not recovery from a recession, it is massive entitlement spending which no Fed-manufactured bubble can fix and a weakened US economy cannot pay for.
I am sure that everyone thought the Nikkei bottomed forever in August 1992 after declining 64% from its high in 1989, and while that low did hold for six years, there were several 50% rallies and selloffs between during which that low was revisited twice. Granted, our policy response has been much quicker, but we are still walking down the same path of zombie banks with the added kicker of leveraged consumers. For the most part, Japan had a rapidly expanding world economy to which it could export whereas the US has no such luxury.
One should not be surprised how quickly shareholder equity can disappear when massive amounts of leverage are involved. I, for one am not convinced we won’t see the 600s again, maybe multiple times, and maybe lower.
You may find this amusing, since this is the same Bespoke group a few months back:
http://seekingalpha.com/article/138298-today-s-market-vs-1938
It appears that Bespoke’s historical data can be used only is support of higher prices.
I meant “in support”…
I completely agree with CF on this. The arrogance of those who can’t conceive of the market even correcting more than 10% or so from here, much less testing the lows or worse, is just ridiculous. Our economy (and the global one too) is so fundamentally broken and has been continually pumped up on more and more debt over the years.
We got just a little glimpse of what can happen when the dislocations from the imbalances exist start to happen. The earthquake will come in at 8.0 or greater on the Richter scale. Dismissing all that is just ignorant hopeful happy talk, or downright devious con artistry meant to separate the rubes and the innocent from more of their money.
The extra length of this bull market has been due to the extra liquidity pumped into the system. Thus if there is more money, prices will go up. This used to be enough for consumers to feel better and start spending on credit. Credit is no more, and thus what will finally really mark the beginning of the bull market will be a stop to declining home values and main street actually feeling better, not wall street.