Barry Ritholtz over at the Big Picture blog has been out in the last few days semi-touting the end the secular bear market that began with the NASDAQ crash of 2000. For one he penned here...
To conclude that the Secular Bear is ongoing, we need to see a few factors:
And there is a major caveat to this: The Fed’s extraordinary ZIRP/QE intervention creates an impression of inorganic gains. Without the unprecedented FOMC actions, I am unsure markets would be anywhere near current levels.
Regardless of your answer to our broad question, there is one thing that I believe to be clear: We are much closer to the end of this secular cycle than to the beginning. Many optimists — most notably, famed technician Ralph Acampora — believe the secular bear market has ended. Even skeptics have to agree that we are more likely in the 7th or 8th inning than earlier stages of the game. Only the “America is Japan” crowd thinks we are in the 3rd or 4th inning.
or this here.....
Last Monday, we looked at whether the Secular Bear Market was coming to an end? and discussed it on Bloomberg TV and Yahoo Finance. I am unsure its over, but barring a Japan like 30 year recession, we appear to be much closer to the end than the beginning.
The secular meme has spread, most recently in today’s WSJ, Is Bull Sprint Becoming a Marathon?:
So the question remains, is the secular bear market nearing its end and more importantly when will it end. I am in Mr. Riholtz's camp that the secular bear is closer to being complete than not. However, I also think that the end of this secular bear is still likely years out and that its end will come from a lower price point (possibly significantly lower) on the market.
For one, the length of the bear markets since 1900 appear to be correlated with the length of the preceding secular bull market. The market run that began around 1914 lasted 15 years until the crash of 1929. This was followed by a 14 year bear market through about 1943. (and yes, this all eyeballed) Beginning in 1943, the market was in a secular bull market until the mid-1960's or about 20 years. This was followed by about a 17 year secular bear market through 1980. This secular bear was followed by another 20 year bull run until the market crashed in 2000, starting the current 13 year secular bear. If the same relationship holds, and yes there is faults in the analysis, then the end of the current secular bear is years out.You can eyeball that relationship using this chart- found at stockcharts.com
Fundamentally and from a value perspective, you can also make the case that the end of this bear market is still a ways off. I remember an analysis completed by the research shop Ned Davis (sorry, I cannot get the original research as it is sitting behind a pay wall) that shows that secular bull markets usually only begin (or inversely bear markets end) when PE ratios on stocks are at absolute lows, like in the single digits lows versus trailing earnings. Currently, the PE ratio on the S&P 500 is more than 17x earnings. This is a far cry from the secular low levels of 5x to 7x earnings at the start of prior secular bulls. Another way to look at the valuation discrepancy is presented by John Hussman at Hussmanfunds.com, who has shown in his weekly commentary that the market is priced for gains of just single digit percentage gains over the next decade. Additionally, you have some great insight provided by Political Calculations indicating that the fall off in trend dividends will dent the market in the months ahead.
Lastly, there are also indications that the current rally is fading. For one, the volume characteristics in the upside move have not been particularly strong in regards to the comparative downdrafts experienced in the 2007. To me this suggests a weakening demand profile for stocks on the upside and a lack of conviction by institutional investors. This is while year-over-year growth in GDP and the acceleration/deceleration in employment levels suggest that the risks of a recession are elevated.
(Update- Barry Ritholtz has updated his opinion over at the Big Picture blog)
To conclude that the Secular Bear is ongoing, we need to see a few factors:
-Are markets still rangebound? Have we made new highs in various indices?Some of the answers to these questions are purely quantitative, and do not require any human judgment. A few of these do require a squishier answer. After 36 months or so of capital outflows from equity funds, we should not rush to judgement after the first month of inflows.
-Are P/E multiples still contracting?
-Are financial news media ratings still falling?
-Is society generally pessimistic?
-Is Main Street still disinterested in equities?
And there is a major caveat to this: The Fed’s extraordinary ZIRP/QE intervention creates an impression of inorganic gains. Without the unprecedented FOMC actions, I am unsure markets would be anywhere near current levels.
Regardless of your answer to our broad question, there is one thing that I believe to be clear: We are much closer to the end of this secular cycle than to the beginning. Many optimists — most notably, famed technician Ralph Acampora — believe the secular bear market has ended. Even skeptics have to agree that we are more likely in the 7th or 8th inning than earlier stages of the game. Only the “America is Japan” crowd thinks we are in the 3rd or 4th inning.
or this here.....
Last Monday, we looked at whether the Secular Bear Market was coming to an end? and discussed it on Bloomberg TV and Yahoo Finance. I am unsure its over, but barring a Japan like 30 year recession, we appear to be much closer to the end than the beginning.
The secular meme has spread, most recently in today’s WSJ, Is Bull Sprint Becoming a Marathon?:
“the rally at the beginning of this year—and signs that investors are putting more money into stocks—has fueled a debate about whether that extended bear market may be over. That would signal the dawn of a secular bull market, priming investors for years, and possibly decades, of double-digit gains.
There is no single marker for the start or end of a secular trend, a fact that has contributed to the debate over whether there has been a secular turn in stocks.
That differs from shorter-term, or cyclical, bull and bear markets, which are broadly defined by gains or losses of 20% from a recent low or high. And because the secular-market trends can last for well over a decade, there are relatively few to study.”
So the question remains, is the secular bear market nearing its end and more importantly when will it end. I am in Mr. Riholtz's camp that the secular bear is closer to being complete than not. However, I also think that the end of this secular bear is still likely years out and that its end will come from a lower price point (possibly significantly lower) on the market.
For one, the length of the bear markets since 1900 appear to be correlated with the length of the preceding secular bull market. The market run that began around 1914 lasted 15 years until the crash of 1929. This was followed by a 14 year bear market through about 1943. (and yes, this all eyeballed) Beginning in 1943, the market was in a secular bull market until the mid-1960's or about 20 years. This was followed by about a 17 year secular bear market through 1980. This secular bear was followed by another 20 year bull run until the market crashed in 2000, starting the current 13 year secular bear. If the same relationship holds, and yes there is faults in the analysis, then the end of the current secular bear is years out.You can eyeball that relationship using this chart- found at stockcharts.com
Fundamentally and from a value perspective, you can also make the case that the end of this bear market is still a ways off. I remember an analysis completed by the research shop Ned Davis (sorry, I cannot get the original research as it is sitting behind a pay wall) that shows that secular bull markets usually only begin (or inversely bear markets end) when PE ratios on stocks are at absolute lows, like in the single digits lows versus trailing earnings. Currently, the PE ratio on the S&P 500 is more than 17x earnings. This is a far cry from the secular low levels of 5x to 7x earnings at the start of prior secular bulls. Another way to look at the valuation discrepancy is presented by John Hussman at Hussmanfunds.com, who has shown in his weekly commentary that the market is priced for gains of just single digit percentage gains over the next decade. Additionally, you have some great insight provided by Political Calculations indicating that the fall off in trend dividends will dent the market in the months ahead.
Lastly, there are also indications that the current rally is fading. For one, the volume characteristics in the upside move have not been particularly strong in regards to the comparative downdrafts experienced in the 2007. To me this suggests a weakening demand profile for stocks on the upside and a lack of conviction by institutional investors. This is while year-over-year growth in GDP and the acceleration/deceleration in employment levels suggest that the risks of a recession are elevated.
(Update- Barry Ritholtz has updated his opinion over at the Big Picture blog)
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