Is this the Longest Bull Market in History?
The news media has been full of claims that the present market is the longest bull market in history. Media reports have claimed that the current bull market which began on March 9, 2009, has lasted for close to 3500 days. This Bull Run seems to have surpassed the previous Bull Run which began after the end of the dot-com bubble in 2002 and continued up to 2008. This Bull Run has also given the investors some spectacular returns. The compounded annual growth rate for the stock market returns are close to 19%. These returns are mindboggling considering the fact that they have continued for close to a decade now.
However, if many stock market analysts are to be believed, this could be the end of the dream run. They are of the opinion that since this is the already the longest Bull Run in history, it would be safe to assume that a correction would just be around the corner. In this article, we will have a closer look at the reasons behind the longevity of this particular Bull Run.
How are Bull Runs and Bear Markets Defined?
The problem with measuring Bull Runs and Bear Markets is the fact that there is no standard definition which is accepted by everybody. However, the Financial Industry Regulatory Authority (FINRA) has come up with a standard set of rules.
According to FINRA, a market can be called a bull market if the value of the stocks keeps rising without seeing a drop of at least 20%. Hence, if a market falls 15%, recovers, and continues to grow it would still be considered to be a part of the Bull Run. The fall of at least 20% is considered to be a signal that the Bull Run is over.
Similarly, there is some ambiguity as to what constitutes a Bear Market. Does the bear market begin when the market has already dropped 20%? Most analysts backtrack to the date of the start of the decline in stock prices. This inflexion point when the market turned is considered to be the beginning of the Bear Market.
However, there is a problem with this definition. The period of time from the peak to when the prices fell down 20% is included in both the Bull Run as well as the Bear Market. This is the reason why many people dispute whether the current Bull Run is actually the longest! Also, in 1990, the markets fell 19.9%. Some analysts round this up and call this the end of the Bull Run whereas others dont.
Regardless of how the specific details regarding measuring the longevity of the Bull Run work, the current stock market is at an undeniable high. Here are some of the reasons behind this high:
Investors need to consider the fact that the above-mentioned causes are going to change very soon. For instance, it is a known fact that interest rates are going to rise drastically over the next few quarters. Similarly, firms are already leveraged, and hence buybacks wont be possible going forward. This is the reason why analysts are skeptical that the future may not be as pleasant as the past.
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