Longest Bull Market:  How Long Can It Go?

By Bobby Moyer, CFA, CFP®, CAIA

Bobby Moyer, CFA, CFP®, CAIA

Bobby Moyer, CFA, CFP®, CAIA Chief Investment Officer

We are currently in the longest running bull market recorded since World War II. On Tuesday, Aug.21, the current bull market, which started on March 9, 2009, tied the previous record and a few days later broke the record after hitting all-time highs yet again. The previous bull market lasted 3,452 days, just over nine years and five months. The current bull market will continue as long as all-time highs continue before the next 20 percent drop. The previous longest bull market started in October 1990 and continued through early 2000. As of Aug. 21, 2018, the current bull market has seen the S&P 500 price return 319 percent while the previous longest bull market price returned 417 percent. If you consider reinvestment of dividends, the returns would be much higher— 535.65 percent and 410.98 percent, respectively. During the current bull market, small cap stocks, as represented by the Russell 2000 Total Return, outperformed the S&P 500 Total Return by about 46 percent; during the last bull market, the Russell 2000 underperformed by about 95 percent.

It is understandable to think that because this bull market has gone on for so long (the longest ever!) that it would be a good time to move out of stocks since the end must be near. It is important to remember the old Wall Street adage that bull markets don’t die of old age. The underlying economy drives corporate earnings and stock market returns, and the current economy looks very strong. One reason why this bull market could last longer is that economic growth was much slower during this bull market than what was witnessed during the 1990s bull market. On a calendar year basis, U.S. GDP grew at a rate greater than four percent in six different years during the bull run in the 1990s, while through the last 9 years the fastest calendar GDP growth was only 2.7 percent in 2014. Slower economic growth lends itself less to businesses and consumers overextending themselves, arguably resulting in a more sustainable period of growth.

Another reason this market may be able to extend longer is the passage of the Trump tax cuts that went into effect in 2018. We usually see economic stimulus applied in the early years of an economic cycle, not late in the cycle. With lower taxes, both corporations and individuals will have more dollars to put back into the economy or invest in the stock market, both of which would be bullish for the stock market. The late cycle economic stimulus may be good for the near-term but could pose a problem during the next recession. The normal course of action is fiscal stimulus early in a cycle, which leads to a larger government deficit, but as the stimulus helps the economy, tax revenues grow which leads to lower deficits at the time of the next recession when additional stimulus is necessary, and the cycle repeats. Late in this cycle, deficits are actually growing. This isn’t a problem right now because the economy is still growing. But when recession eventually hits it is likely that tax revenues will decline, resulting in a ballooning of deficits. While these tax cuts appear to be extending the life of this bull market and economic expansion, they will likely leave the federal government poorly equipped to respond when the economy enters recession.

No one can reliably predict when this bull market will end—it could go on for years, or the end could be right around the corner. Not many investors were feeling comfortable investing in March 2009, but choosing to stay on the sidelines then would have proven to be very costly. We advocate making investment decisions based on your needs and goals, not on the length of the bull market or some other irrelevant statistic discussed on the nightly news.

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— Topics: Investments, Market Performance