When Do Bull Markets End?

Here’s the latest from the Richard Bernstein who is on the opposite spectrum of the John Hussman market view.  Bernstein, the former Merrill Lynch analyst who now runs his own shop, is very bullish and as always, constructs a nice argument in his latest report:

“Bull markets typically end when valuations are extreme, the Fed is tightening monetary policy, and investors are over-enthusiastic about potential equity returns. Valuations are quite attractive given that the 10-year t-note yields roughly 1.5%. Investors are very leery of equities, and equities are no longer the asset class of choice. The Fed is considering easing further, and a tightening of monetary policy seems far into the future.

The opportunity cost of fear has been very high. Both institutional and individual investors have largely missed out on a doubling of the US equity market. If this cycle continues to follow historical precedent, as it has done so far, then investors will eventually try to play catch-up, and fund flows will likely turn decidedly positive.

The bull market seems to be a very typical one and, like past cycles, is based on fear. This bull run may still be in its early stages despite being forty-one months old.”

Read his full note here.

Source: RBA


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Erik V

    What rubbish. Anyone who cites the “Fed model” as a relavent valuation metric is immediately dicredited. Also with the market almost at cycle highs and the VIX at 5 year lows, I would hardly say that fear is priced into the market. Hussman is an investor, not a trader. He is right over the long term and his analysis is backed up by extremely rigorous and complex data analysis. The permabull arguement is backed up by “bond yields are low, investors don’t want to miss QE3, and valuations aren’t as bad as the peak of previous bubbles”. How compelling.

  • Tradeking13

    This economy and market are anything but typical.

  • barak

    maybe the fed isn’t tightening, but basically every government in a major economy is tightening and it’s killing growth in a very weak consumer background. couple this with peaking margins, and above 20 cape and this is not the environment for bull markets.

  • http://onlypricesmatter.wordpress.com/ B Ferro

    Agree that this is complete trash.

    Early stage bull run…


    This level of trash work is unacceptable from a bulge bracket firm.

    Does he realize the only bull runs to exceed the current one in history from a length standpoint excluding a few in the 50s that went ~40-45 months include…

    2003/2007 – ~54 months
    1924-1929 – ~65 months
    1995-2000 – ~69 months

    Seriously. I don’t care whether you’re bullish or bearish. Not my point here. My point is that these guys have no context of history.

    This is hardly a “nice report” as CR puts it and this, even if it goes on longer, is harly an “early stage” bull market.

    Trash. You can’t just go out and write whatever you want if it has ZERO historical, factual grounding.

  • jt26

    The unwashed masses usually play equity catchup after at least 1 year great returns (not just ok returns) and low volatility the previous 3 years. We are clearly not in that situation now.

  • http://www.adsanalytics.com adsanalytics

    In spite of the recent rally and low VIX, the market is far from expensive. Equity risk premium is sky-high, liquidity is high, and valuations are reasonable. From our market health report (below), only flows look toppish – but that’s from a very low base as investors have hated equities for years now.


    ADS Analytics

  • Larry

    Just one point. The Fed has eased 3 years running. QE1 QE2 and that Chubby Checker thingie. So if they don’t this year wouldn’t that be considered tightening?

  • Eagle-Eye

    I think the author has made some valid points. I have lived and invested through multiple bull/bear markets and the market’s ability to advance in the face of fear, gloom and doom is quite typical. Yes, bull markets usually end when the masses are euphoric. Is anyone feeling euphoric right now? There are those that believe that we are still in a secular bear market. I believe that is unlikely. That being said, although I am long the market,it is difficult to remain confident given the never ending barrage of negative news. However, not bending to that onslaught is what separates the “smart money” from the “dumb money” It’s not easy.

  • Eagle-Eye

    By pointing out that there have been bull markets that have exceeded the length of the current bull market, by a wide margin, you are validating the author’s case? You want some factual grounding? The market has advanced nearly 100% since it’s 2009 lows. How can you not call that a bull market move?

  • Anon

    Indeed… Markets are incredibly distorted right now by massive liquidity actions by central banks. Just because bond yields are very low doesn’t mean stocks are cheap – under the “fed model” logic, one of the worst things for the stock market right now would be an economic recovery resulting in higher interest rates – the market “fair value” would collapse.

  • Anonymous

    Great post Eagle-Eye. This is a hard market to trust but it keeps going up.

  • Andrew P

    Japan had a secular bear market for 20 years, but there were some big bull multi-year rallies within that bear. Just food for thought.

  • Detroit Dan

    I agree with B Ferro that this is complete nonsense. And I love Eagle-Eye’s comment that he is bullish despite the “never ending barrage of negative news”. That is classic…

  • InvestorX

    I agree, but the only problem is…the market is up and VIX is breaking below 14%. So the bears sound analytically right, but the action is still against them.

  • ES71

    So, what we’ve had last few years is called a bull market? It doesn’t feel that way, way too painful. I feel that we never really recovered, the recession never ended, just stabilized. This market is not a bull market of the 90s, that is for sure.
    Can there be a bull market with economy growing at 2%?

  • Boston Larry

    Fiscal policy tightening this time may replace monetary tightening in the past. If we go over the fiscal cliff, or even if we don’t, but something like the Romney/Ryan plan is enacted bringing huge cuts in gov’t spending. US fiscal tightening and Chinese monetary tightening may be the catalyst that will bring an end to this bull market. Also a surge in oil prices caused by an Israeli attack on Iran.