Seven Year Itch…or Not?
In 2015, the US stock market generated a total return of just 1.4%. This means that the U.S. stock market has now generated positive returns for seven consecutive years.
Given the extent of the gains, should we be getting nervous?
This is certainly a fine example of what we consider to be a marathon style bull market environment. Stocks in bull markets don’t usually carry this type of longevity, but it would be deemed a solemn mistake to believe that there is no life remaining in this epic parade of results.
Let’s take a historical journey to the 1980s and 1990s to obtain a window of insight to support this notion.
In a recent note by Dr Steve Sjuggerud of Stansberry Research, commenting on the booms of the 1980’s and 1990’s, he stated “these long stock-market booms went out with a bang, not with a whimper. I expect our current great bull market will go out with a bang, not a whimper, just like the last two. In the 1980s… stocks went up for up for eight years in a row – finishing up with an astounding 31.7% gain in 1989.” Let’s review the following table:
| Year | Return | In a row |
| 1982 | 21.6% | 1 |
| 1983 | 22.6% | 2 |
| 1984 | 6.3% | 3 |
| 1985 | 31.7% | 4 |
| 1986 | 18.7% | 5 |
| 1987 | 5.3% | 6 |
| 1988 | 16.6% | 7 |
| 1989 | 31.7% | 8 |
The bull market during the 1990s displayed even more strength, when it was up nine consecutive years, with the last five years providing significantly robust results. Let’s review the following table:
| Year | Return | In a row |
| 1991 | 30.5% | 1 |
| 1992 | 7.6% | 2 |
| 1993 | 10.1% | 3 |
| 1994 | 1.3% | 4 |
| 1995 | 37.6% | 5 |
| 1996 | 23.0% | 6 |
| 1997 | 33.4% | 7 |
| 1998 | 28.6% | 8 |
| 1999 | 21.0% | 9 |
Sjuggerud continued, “The last two years of the 1990s were even better than they look here…What you don’t see here are the crazy gains in tech stocks in the last two years of this boom… The NASDAQ index soared 40% in 1998 and 86% in 1999. Meanwhile, the last two years of our boom have been tame by comparison… up almost 14% in 2014 and up just over 1.4% last year. This is not what the end of a great bull market typically looks like. Great bull markets typically end with incredible investor enthusiasm, wide investor participation, and (quite often) big returns. We are not seeing any of these things, yet.”
So the key takeaway is simple… monumental bull markets do not simply expire on a predetermined time schedule. Bull markets almost always expire at a time of intense optimism. At this point, this has not occurred. With this insight the odds significantly favour the thesis that there is still much oxygen left before this boom turns to bust.
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The information contained in this report is General in nature and has been prepared without taking into account your objectives, financial situation and needs.