“As always, remember history is a guide, but never gospel,” warns Sam Stovall.Ironically, few people know and talk more about stock market history than Stovall, S&P Capital IQ’s Chief Investment Strategist.
Anyway, the bull market just turned three years old on Friday (some argue the bull market actually has yet to turn one). In this week’s Stovall’s Sector Watch, Stovall discuss what happened when past bull markets entered their fourth years.
During the fourth years of surviving bull markets since 1945 (there were six out of the original 11), however, the S&P 500 rose an average of 12.5%, recording individual returns ranging from a decline of 2.3% in 1952-53, to a near 30% advance in 1985-86. However, the bull market that started in 1962 did not survive to celebrate its fourth anniversary, as it joined the below-average duration bull markets of 1947, 1966, 1970, and 1987. And while consistent double-digit price gains characterised first-year bull market performances, a wider array of results, as well as a lower average advance (from a smaller set of observations), were more consistent in fourth-year bull markets. In addition, while the cyclical sectors led first-year bull markets, the best performing sectors during the fourth year were predominantly defensive in nature: Consumer Staples, Health Care, Materials and Telecom Services.