It took a while (as in over 500 days), but the S&P 500 and DJIA finally managed to close at fresh all-time highs on Friday. While the bears may argue that the so-called "breakout" must prove itself in the coming days/weeks (Martin Pring was famous for suggesting an additional 3% was needed as confirmation of key breakouts), analysts who study the history of these things suggest a new bull market is now officially underway.
With the S&P 500 up 35.3% from its October 12, 2022, low, the DJIA up 31.8%, and the NASDAQ 100 having surged an eye-popping 61.9%, some might raise an eyebrow about all the talk of a "new" bull market. After all, the media's common definition of a bull market is a gain of 20%. And the point is the major indices crossed that threshold some time ago.
However, many analysts, who admittedly look at such things from a longer-term perspective, require an index to make a new all-time high before declaring a bull market to be "officially" underway. The idea here is to try and avoid getting whipsawed by bear market bounces - the most violent of which tend to occur during ongoing bear trends. So, by waiting for the indices to make new highs, analysts tell us the odds of the move higher continuing (I.E. not being reversed) are historically improved.
But with gains of 31%, 35% and 62% having already occurred on the major indices, one couldn't be blamed for feeling like the declaration and/or taking action might be a wee bit late. Thus, investors may also be wondering, do I really want to buy here?
To be sure, the old adage "buy high, sell higher" hasn't worked from a trading perspective in a long time. Generally speaking, breakouts have more often turned out to be "fakeouts" in the near-term - as opposed to a reason to jump in with both feet. But the good news is from a big-picture perspective, history is clearly on the side of the bulls.
The History of Bull Markets
According to CFRA Research, the average gain for bull markets enjoyed by the S&P 500 since 1947 has been 156%, while the median of the 13 bull cycles studied has been 101%. Not bad. Not bad at all.
CFRA's study shows that the smallest gain was 22% in 1947-48 and the largest was 417% seen during the roaring 1990s.
In terms of the longevity of these bull markets, CFRA says the average bull run has lasted 1,735 calendar days (or about 4.75 years), with the median being 1,512 days (4.1 years).
To confirm this study, I turned to the computers at Ned Davis Research and reviewed their work on all bull/bear cycles going back to 1900.
NDR defines a bull market in a couple different ways - both very different from the common approach used in the media. First, NDR says an increase in the DJIA of 30% after 50 calendar days - or a 13% gain after 155 days both qualify. In addition, a gain in the Value Line Geometric Index of 30% after 50 days also qualifies.
Since 1900, NDR data show there have been 38 bull market cycles. The average gain for the DJIA has been 85.9% over a period of 783 calendar days - or just over 2 years.
NDR goes on to segregate the cyclical bulls that have also occurred during secular bulls/bear periods (think 10 years or more). It is certainly positive that bull runs taking place within a secular bull phase tend to last longer (1030 calendar days or 2.8 years) and go farther, sporting an average gain of 105%. Party on, Wayne!
The Strategy From Here
So, with the DJIA currently up 31% from its low and the average bull running between 86% and 105%, the odds would seem to favor the bulls here. As such, from a longer-term perspective, it is definitely NOT too late to "get in" with money that is/has been on the sidelines.
Sure, stocks are overbought and sentiment is a little too rosy at the present time. And given the technical importance of a "breakout" here, we would not at all be surprised to see the bears try and put up a fight. Thus, a pullback or a challenge of this line in the sand would be logical in the coming days/weeks.
However, for those investors looking out past the next month or so, any/all pullbacks should be viewed as an opportunity to put money to work. Unless, of course, something changes the fundamental backdrop. Then of course, all bets are off, and we would need to create a new plan. But for now, I'm staying seated on the Bull train and enjoying the ride.
Thought for the Day:
To sin by silence when you should speak out makes cowards of all men. -Voltaire
Wishing you green screens and all the best for a great day,
David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research, a Registered Investment Advisor
At the time of publication, Mr. Moenning held long positions in the following securities mentioned: None - Note that positions may change at any time.
NOT INDIVIDUAL INVESTMENT ADVICE. IMPORTANT FURTHER DISCLOSURES