The bull market: Five years old, but who’s counting?

Manley on the Street - The bull market: Five years old, but who’s counting?“If the motion of an object is one thing, and the standard by which we measure its duration another, is it not obvious which of the two has the stronger claim to be called time?” —St. Augustine

I must admit that the answer to Augustine’s question is not really obvious to me, but what do I know? Well, for one thing, I know that the equity market hit a bottom on March 9, 2009, and that most of the motion since then has been up. It has been a long time coming and a long way gone.

To me, by either duration or magnitude, the current bull market looks pretty extended. Five years is a long time to rise, and 180% is a big rise by historical standards for the S&P 500. These are both obvious; calendars and almanacs are always in the public domain.

The real question is whether either duration or magnitude is the proper metric to use in analyzing bull markets. I think the answer is that neither of the statistics is improper but neither is optimal, either. Bull markets are measured by time and distance, but I believe that they are propelled by fundamentals and the perception of change in those fundamentals. As of now, I see no evidence that those fundamentals have yet run their course.

Bull markets begin when the perceived situation is at its worst (said Manley with 20/20 hindsight) and rise as the perception shifts to simply terrible. Scarred psyches are reluctant to release hoarded cash as recent memories are projected into the immediate future. Initial improvements in fundamentals are perceived to be transitory traps. Sustained improvements are believed to be already discounted (if I should have bought when things were bad, surely I should sell now that things are good). Yet, usually, through all of this, the bull market soldiers on.

I do not think that bull markets die of old age or acrophobia. They are killed by investors who have lost all sense of risk or central banks who believe that the economy has moved beyond full capacity utilization and now must be restrained. Sometimes it takes longer than others to reach these dangerous states. It is the situation, not the clock, that sounds the death knell. So far, I see few signs of boundless enthusiasm or stresses on capacity. I think that there is room for the market to continue upward.

Think of it as an airplane trip. If the plane were 30 minutes early, would you stay in your seat for half an hour? If the plane were 30 minutes late, would you try to exit at 10,000 feet? I think not.

So, fasten your seatbelts and sit tight. I think there is some time left on our journey.

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