Somewhat lost in the shuffle from the Dow's record high close last week, was that yesterday marked the four year anniversary of the start of the bull market in October 2002. This current rally marks the fifth longest bull market since the end of World War II. In the chart below, we compared this bull market (blue line) versus all other bull markets of longer duration.
In the gray chart, we isolated the performance of the market during each of the prior bull markets which lasted four years or more. As the chart illustrates, in four of the five periods, stocks had positive returns in the fifth year. The only year they fell was during the '57 - '61 bull market, when the bull market peaked shortly after hitting the four year mark.
I have a bit of a problem with the 74 to 80 period. The market dropped 25% in 78. I think that's the defintion of a bear market. So the bull only lasted 4 years. The only bulls that have lasted longer have either been at the tail end of massive bubbles. 91-00 & 24-29 or have started at the bottom of secular bear markets with valuations extremely depressed. That was not the case since this bull started at valuations higher than any other bull ended. Not to mention that no secular bear market has ever ended in such a short time (2 years) and never before valuations have gotten severely depressed. I seriously doubt that human nature has changed in the last 20 years so I'd say the odds are that this bull is on it's last legs
Posted by: Gary | October 10, 2006 at 07:27 PM
Gary,
Nice observation. For our measures of bull and bear markets, we have alsways used a 20% threshold. We also measure bull and bear markets based on the S&P 500 vs. the Dow, since that measures a more diverse universe of stocks. In the 76-78 decline, the S&P 500 never declined 20% from its peak, although the Dow did. So you are right based on the Dow, the 74-80 period contained two bulls and one bear. In the text of the post, we should have been more clear that we were measuring the performance of the S&P 500.
Paul
Posted by: Paul Hickey | October 11, 2006 at 09:37 AM