This Bull May Still Have Room to Run

The following article was originally posted at

This may seem like a cop-out, but let me explain. I am not necessarily saying that this bull market will continue to run, (and anyone who thinks they actually know whether it will or not is a fool), but what I am saying is that I am sick and tired of all the talking head talk that this bull must be near its end because 1. It has gone on for so long, or 2. We are at new highs, so market must go down.

First let me touch on a real basic physics lesson. If you are trying to measure how far something has gone, like a bull (market) you need to know two things. Both the time involved and the speed at which it has travelled. Think of it this way. After two hours of running participants will be scattered all over the course during the Boston Marathon. Simply calling the race after two hours would leave many slower runners with plenty of race yet to run while the top runners have finished.  Current market analysis seems to ignore the speed factor.

If we apply this to the market let’s see how far we have really come during this “extended” rally. In the graph below we are looking at GDP after four separate recessions. Thinking of speed as the rate of GDP growth, this rally is made up of amateur runners vs. the Kenyan runners of the 1934 – 1940 recovery!

Chart 1. Economic Recoveries

Post Recession GDP Recoveries


While annual change in GDP is not correlated to the stock market, over the long term the two are coincident if not causal. From the above it can be seen that the economy has not yet grown substantially over the last seven years. Below is a chart comparing total GDP growth over each period in constant inflation adjusted terms.

Table 1. GDP Growth Comparison

GDP $ Growth Post Recession Total growth in GDP
1934 – 1940 47%
1976 – 1982 14.30%
1983 – 1989 29%
2010 – 2016 12.70%


Based on the data above the economy grew at more than twice the recent amount in the ’83 – ’89 recovery, nearly 4 times as much in the ’34 – ’40 recovery and even outpaced growth from ’76 – ’82. Keep in mind that was the time of “stagflation” and 1982 was the second year of the Great Recession!

It seems to me that the current economy has substantial room to grow and by extension the stock market as well.

A Look at the Stock Market

There is also a discussion point made that says that the above analysis maybe correct, but the stock market is way ahead of the economy. Therefore a stock market correction is overdue, even if we avoid an economic recession. Balderdash! It is all a matter of perspective.

The chart below shows the return on an investment in SPY, the SPDR’s S&P 500 Index ETF from 8/31/2000 – 06/05/2017. The start date is the market high before the start of the “Tech Wreck” – 9/11 market crash from 2000 – 2002. The horizontal white line shows a level 0% return from the start.

Chart 2. SPY Total Return

SPY from 2000

Source: / Bill DeShurko

The bull has run its course argument looks at the market performance from the bottom in 2009 to the present. And in fact the market has had a cumulative return of 320% since then. However, the early returns off the lows only resulted in an investor recapturing their losses from the tech wreck and the financial crisis as the return since the breakeven point from 2000 is only 135%.

[Author’s Note: Let me summarize that for you. An investor in a low cost ETF Index Fund (SPY) from 8/31/2000 – 9/26/2011 would have lost about 50% of their money twice and made absolutely zero money for 11 years! Nice strategy….]

But measuring a bull market from the bottom of a bear market seems disingenuous to me. A bull is about making money. For any investor from before the bear market, the bottom back up to the previous level (the 0% line above) is just a matter of a recovery of losses. Recovery is not a bull market. Defining a bull market from a market low is akin to saying a cancer patient starts their recovery from the day of surgery or start of treatment. That is not recovery! Recovery starts after the treatment is over and barring a relapse ends when the Doctor gives the “cancer free” pronouncement. Similarly bull markets don’t start until after the treatment  period.  As seen above bear markets can relapse too. A better definition of stock market recovery is to start when the market reaches its previous high and stays above that level. By that definition this Bull started in September of 2011 and has provided us with a 135% gain.

The question is, “How does this stack up historically?”

Since 1900 the stock market has gone through bull and bear cycles. Unless the market drops by some 60% or so we broke the old high in 2000 and have stayed above it since 2011. An 11 year bear market. About average since WW II.

Chart 3. Secular Stock Markets




Looking at bull markets by comparison from 1940 – 1965 the market gained a cumulative 955%! And during the great bull from 1980 – 2000 another 1099%. By comparison our current 135% gain seems rather paltry! We certainly aren’t at the end of this bull market just because we are at record highs!

So What Does Matter?

Earnings, earnings and earnings. S&P 500 corporate earnings growth has been anemic since 2011, with a fairly rare non recessionary drop in 2015. With growth returning in 2016 and expected into 2018 it would be rare for a bear to start as earnings are growing. But without an economic jolt from corporate and personal tax cuts all bets are off. Deregulation will certainly help smaller businesses but I’m not sure it is enough to spur wage growth. If wages and earnings can grow simultaneously I would not bet on an early end to this Bull Run.

And one final note: a 10% drop is not a correction, it used to be a one or even two time annual event. A real bear means a 40% drop or more, and likely over a multi-year period.

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.


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