keep hitting new all-time highs.Beginning of the end?
Not in the slightest, according to S&P Capital IQ Chief Equity Strategist Sam Stovall.
The king of historical stock market movements, Stovall looks back at the past 11 bull markets, and finds there’s no reason to panic:
During the past few weeks, the financial media has constantly reminded investors that the S&P 500 has recorded successive all-time closing highs. They also make it sound as if we should enjoy these days while they last, for this bull market is therefore likely to end in the very near future. I don’t know why they say that, other than to instill fear and thereby ensure that investors stay tuned. History, on the other hand, shows that new highs are typical in a maturing bull market.
According to Stovall: each of the 11 bull markets since 1949 lasted an average 57 months. Plus, 7% of all trading days within these bull markets set all-time closing highs.
It’s not yet clear whether this bull market is secular (extended, upward- sloping advances) or cyclical (shorter periods of undulating, sideways patterns of advances and declines). Here’s what Stovall tells us about both:
- Average duration: 64 months
- First all-time high: 33% of the way through average bull market
- Days in all-time high territory: 9%
- Average duration: 48 months
- First all-time high: 70% through bull market
- Days in all-time high territory: 4%
Where does that mean for the current bull market? Well, we are 52 months through this bull market.
The first all-time high came on March 28, 2013, so if the bull ended last Friday, this first all- time high would have occurred 93% of the way through its bull run.
Meanwhile, there’ve been 21 additional all-time highs since then. That represents just 2% of all bull-market trading days. Based on the historical data, this bull market ranks 9th out of 11 based on this measure.
“So history would indicate, but not guarantee, that this bull market has many more new-highs to record before finally running out of steam,” Stovall writes.
However, he goes on to say that a temporary pullback is probably imminent:
After advancing in price a bit further once getting back to breakeven [the March 28 tick — ed.], the S&P 500 has historically followed a fairly consistent four-step dance routine of:
1) finally succumbing to a pullback from the exhaustion of climbing back above the prior high,
2) recovering from that pullback,
3) advancing an additional 4% to 8% after recovering from that pullback, before
4) ultimately slipping into a new and deeper decline of between 10% and 20%.
We already did steps 1 & 2, and are in the midst of step 3. It’s step 4 that has me a bit concerned…
Transposing past movements to today’s bull market, Stovall predicts, the S&P 500 could rise to between 1738 and 1804 before slipping into a correction that could take then take it down to between 1450 and 1567.
In conclusion, “buy-and-hold investors should prepare to hold on tight and don’t let your emotions get in the way of maintaining an appropriate asset allocation,” says Stovall. “However, for those willing to trade short-term swings in equity prices, another opportunity may just be around the corner.”
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