This bull market may be just two weeks old

Think that the current bull market is the longest in U.S. history and close to dying?

Think again. The current bull market may be less than two weeks old.

That’s because of the high percentage of stocks that recently traded more than 20% below their 52-week highs. A 20% drop is the semi-official definition of a bear market, and in late October more than half of exchange-listed stocks satisfied this criterion.

That crucial fact has been overlooked by almost everyone because they focus on the major market averages. At the market’s Oct. 29 low, for example, the Dow Jones Industrial Average DJIA, +0.04% was just 8.9% below its all-time high, while the S&P 500 SPX, -0.25% was just 9.9% below. Neither decline was sufficient to satisfy even the definition of a correction, much less that of a full-fledged bear market.

The story told by the average stock was much different. At the Oct. 29 low, 57.3% of the stocks in the S&P 1500 Composite Index were more than 20% below their 52-week highs. The comparable percentage for the 500 stocks in the S&P 500 index was slightly lower, but still a formidable 47.0%. (See accompanying chart.)

These numbers put the lie to the widely-held narrative that the current bull market is almost 10 years old — the longest in U.S. history. That narrative is “just a bunch of hooey,” John Buckingham, editor of The Prudent Speculator newsletter, told me in an interview. “It seems like no one takes the trouble to look at the facts.”

The Prudent Speculator is the top-performing newsletter I have tracked over the past 30 years. My Hulbert Financial Digest tracking service calculates that its average model portfolio has beaten the Wilshire 5000 index by an annualized average of 14.2% to 10.2%.

As these performance numbers suggest, Buckingham is not complaining. On the contrary, he stressed that the recent stealth bear market created opportunities for long-term investors to pick up good-quality stocks at a 20% discount.

If indeed the current bull market began on Oct. 29, does that mean much higher prices are in store? Not necessarily. According to the bull-market calendar maintained by Ned Davis Research, the shortest bull market in U.S. history lasted just 61 calendar days — two months, in other words. That bull market lasted from early July to early September 1932, in the depths of the Great Depression. A bull market of similar length today would take us just to late December.

Most bull markets last longer than that. And contrarian analysis explains why: It takes a while for the widespread pessimism accompanying the bear market’s low to give way to widespread optimism.

In that regard, fortunately, at least the immediate sentiment outlook looks promising. With so many individual stocks in their own bear markets, many investors experienced far greater losses than suggested by the broad market averages — and became particularly dejected. They largely remain so today, despite the market’s strength since late October. That’s positive from a contrarian point of view.

For more information, including descriptions of the Hulbert Sentiment Indices, go to The Hulbert Financial Digest or email [email protected] .

 

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