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Current Bull Market Turns 100 Months Old

It’s been a busy month so far in America. Earlier this month, the country celebrated its Independence Day, marking the 241st year since gaining freedom from Great Britain. This past Sunday the country celebrated another milestone. The current bull market witnessed its 100th month without experiencing a downturn of at least 20%. Maybe not quite as monumental as the first milestone, it’s still something amazing in the world of finance. It’s already the 2nd longest bull market in the history of the country, but this milestone gets the current bull market one month closer to passing the longest one ever.

So, what is the longest bull market ever? For the United States of America, the answer is 113 months, or nine years and five months. This was achieved during the bull market of the 1990s, spanning from October 1990 to March 2000. This era was known for astronomical tech company valuations, increasing popularity of mutual funds and hedge funds, and a disregard for company fundamentals.

As mentioned, the current bull market is now over 100 months old, just over 1 year away from passing the longest bull market ever. It’s worth noting that no bull market has ever made it to the 10-year mark (120 months). How has the current bull market survived this long without having a recession? Part of the answer lies in the trajectory of the returns recognized. Often-times markets will increase too quickly, burning out sooner rather than later and then having a climactic drop-off. This bull market, on the other hand, has had a couple great years, but other than that has been producing good, yearly returns, a slightly above the historical average. Look at the graph below, comparing the current bull market to that of the Dot Com era. Notice how in this 90s we experienced slow growth initially and then the market took off, compared to high growth in the current bull market followed by modest gains.

Picture yourself out on a hike going up a steep mountain. If you use the switchbacks as intended, and maintain a slow pace, you’ll most likely be okay to proceed, but if you try to go straight up the mountain at full speed you’ll quickly burnout. Looking at the graph you can see that we’re still nowhere near reaching the total return of the 1990s bull market. With Friday’s record close, the S&P 500 has now returned 264% since the bottom in March 2009, well below the 417% return during the Dot-Com bull run. This reinforces the idea that people should measure bull markets by considering both length and market performance, not simply one or the other. This market currently ranks 3rd in terms of performance, just shy of the 267% return produced by the bull market during the 1950s.

The trillion-dollar question then becomes: when will the current bull market end? Unfortunately, nobody knows the answer to that. Some analysts have been predicting it now for several years, only to watch as the markets continue to rise. Others think the bull market is here to stay for several more years, assisted by perpetual low interest rates, low unemployment, and no imminent catalyst to derail the train. I fall more with the latter group, although I believe if the markets should rise 8% (minimum) during the 2nd half of 2017 that a recession could come as soon as Q1 2018. As always, it’s difficult to say, and the next recession will most likely be caused by something that isn’t even on most analysts’ radar. Looking back at the recent bull market preceding the most recent bear market, not too many people would have predicted that Lehman Brothers would go belly up, that Bernie Madoff was operating the largest Ponzi scheme in history, or that the US housing market would collapse in such dramatic fashion.

All one can do at this point is try and prepare for when the next recession does come. This means building up an emergency savings fund, paying down debt, and being nimble with any capital in the financial markets. What are your thoughts? Do you see an end in sight for the current bull market or do you think this one’s going up, up, and away?

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