The Same Old Bull

November 16, 2017

Sigmund Freud, devotee of the human psyche, wrote, "One day, in retrospect, the years of struggle will strike you as the most beautiful."
Human nature dictates that we often reminisce with a fervor quite different from what appeared to be the sentiment of the times. Consider the psyche of today's investor class. Though the S&P 500 has delivered better-than-14-percent returns for eight years, many investors have yet to dip their toes back into the deep end of the equity pool. So concerned, as they are, that the market will swerve harrowingly back into its 2008 form.
Even as we may end up looking back on this era as one of history's great investment opportunities.
In fact, such pessimism remains one of the foremost drivers of our current market outlook. Which calls for this market continuing in an upward and right facing trendline. As bull markets do not die on the wings of despair. But climb the wall of worry. Scale the heights of skepticism. Crash the halls of capitulation. And only then, amidst the rising euphoria, does Mr. Market pull the punch bowl and break our collective hearts.
How many times o'er these last eight years have we been told by some blathering mainstream media mannequin, jaded Wall Street analyst or loquacious cocktail party pundit that this market is cooked? Overdone? Out of steam? And how many times have those narrow-minded claptraps been dead wrong?
Every time. If you're counting.
Somehow, these all-seeing simpletons failed to notice the intra-bull market bear trap that occurred in 2011. When Moody's, Fitch's and S&P downgraded U.S. Treasurys, sending the S&P 500 index down by 21.6 percent. Now, the nattering naysayers will explain how that drop was, in fact, only a 19.5 percent fall. Forget about the closing prices. Intraday prices fell over 21 percent. So marking this precipitous decline as -- officially -- a bear market drop. At the time, however, the pundits fixated on the fact that the closing prices only reached a 19.5 percent decline. Falling short of the 20 percent bear threshold.
Moreover, those same geniuses never noticed that the small-cap Russell 2000 index fell 30.7 percent. Blowing well past the frontiers of bear-market territory. Leaving some of the more thoughtful analysts to observe that, just perhaps, the real bull market began in March of 2013. Marking the date at which equity prices finally reclaimed their pre-crisis 2007 highs.
Nor was 2011 the only drop of consequence.
In July of 2015, amid turmoil in China and precipitous declines in the oil market, the S&P 500 fell again. This time by 15 percent. Yet some of us noticed that the median S&P 500 stock was down 25 percent throughout a tumultuous period that lasted through February of 2016. A period that saw small caps fall by 27 percent. Emerging markets drop 40 percent. And the once vaunted Chinese equity index plummet 49 percent.
More broadly, from October 2014 through October 2016 the S&P 500 index traveled sideways for two years. Logging a million miles. Adding no gains at all.
And yet today, those same market wizards excoriate us for believing that this market can continue higher. So many alleged experts. So much of the same old bull.
Going by the traditional measures that gauge the starting point of any secular bull market, one could conclude the current bull market actually began as recently as a year and a half ago. And if, as history reveals, the average bull market persists for 97 months, then one could conclude that the market run-up may still have legs.

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