Another Bull Market Milestone, But Getting Bumpy

As we continue down the path of a historically long cycle, what might keep the current bull market from fading into old age?

March 12, 2018

At nine years since the prior bear market ended in March 2009, the current equity bull market is now the second longest on record without a 20% drop in the S&P 500. As we continue down the path of a historically long cycle, what might keep the current bull market from fading into old age?

Three Longest Bull Market Cycles (post-WWII)

 

 

Cycle Start Date

Cycle End Date

Duration

Return Percentage

Longest

12/4/1987

3/24/2000

148 months

582%

Second Longest (Current)

3/9/2009

3/9/2018

108 months

312%

Third Longest

6/13/1949

7/15/1957

97 months

263%

Source: Bloomberg, Yardini Research, Inc. Data as of 3/9/2018.

Synchronized global growth, rebounding oil prices and favorable economic policies made 2017 a strong year for equity markets with the S&P 500 ending the year with a 22% double digit return. While 2017’s solid broad-based performance across asset classes set the bar high, there is reason to believe that this bull will continue, albeit it at a slower pace and with some bumps in the road.

 

What goes up, must come down…eventually

2018 began on a high note with the S&P 500 continuing its upward trend reaching a high of 2872.87 on January 26. But what goes up, must come down eventually, and it did. February was marked by a sharp sell-off in equities due in part to interest rate concerns and inflation jitters. The S&P 500 declined 2.6% in February, the index’s first monthly loss since October 2016. The streak of 15 positive months was the longest on record. Further, after a year of very low volatility, the CBOE Volatility Index (VIX) spiked from a record low of 9 in November 2017 to 37, well above its historical average of 19.

Despite the recent market disruption, there are many factors that favor a continued bull market: The macroeconomic backdrop remains strong, the US economy is moving along at a solid pace and forecast to grow at 2.6%, earnings growth expectations have been adjusted upward, and valuations have become more reasonable on the heels of February’s decline.

Buckle up and stay the course

While recent market declines and the spike in volatility have caused uncertainty, drawdowns are perfectly normal even during bull markets. Since 1946, pullbacks, which are defined as a 5%–10% decline, have occurred, on average, once per year, while corrections, defined as a 10%–20% decline, have occurred, on average, once every three years. As shown below, volatility may bring opportunity, and years with large drawdowns often end in positive returns. In fact, the S&P 500 finished the year positive in 76% of calendar years since 1980.

Years with large drawdowns often end in positive returns

 

Year

Annual return

Largest decline during calendar year

1980

25.77%

-17%

1981

-9.73%

-18%

1982

14.76%

-17%

1983

17.27%

-7%

1984

1.40%

-13%

1985

26.33%

-8%

1986

14.62%

-9%

1987

2.03%

-34%

1988

12.40%

-8%

1989

27.25%

-8%

1990

-6.56%

-20%

1991

26.31%

-6%

1992

4.46%

-6%

1993

7.06%

-5%

1994

-1.54%

-9%

1995

34.11%

-3%

1996

20.26%

-8%

1997

31.01%

-11%

1998

26.67%

-19%

1999

19.53%

-12%

2000

-10.14%

-17%

2001

-13.04%

-30%

2002

-23.37%

-34%

2003

26.38%

-14%

2004

8.99%

-8%

2005

3.00%

-7%

2006

13.62%

-8%

2007

3.53%

-10%

2008

-38.49%

-49%

2009

23.45%

-28%

2010

12.78%

-16%

2011

0.00%

-19%

2012

13.41%

-10%

2013

29.60%

-6%

2014

11.39%

-7%

2015

-0.73%

-15%

2016

9.57%

-11%

2017

21.83%

-3%

Source: Bloomberg. S&P 500 Index. Data as of 12/31/2017.

Whether driven by strong fundamentals, pro-growth policy implementation, or other factors, the current bull market appears to have some life left in it. So, while we may be entering a period of heightened volatility and experience declines from time to time, they may serve as good buying opportunities over the long term. Active managers can help identify attractive entry points for investors looking for companies with strong growth potential at reasonable valuations. And, if current market conditions have you on edge, talk to your financial advisor about investment strategies designed to offer downside protection and portfolio diversification.

Visit On the Markets to access additional insights and our asset managers’ latest market outlooks.


CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

S&P 500 Index is an unmanaged index of 500 common stocks of large U.S. companies, weighted by market capitalization. It gives a broad look at how U.S. stock prices have performed.

Indices are unmanaged and an investment cannot be made directly into an index.

For compliance use only 0315837-00001-00 Ed. 3/2018

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