Debunking the bears part 1 – The bull market has gone on too long
One area where bears seem to get a lot of traction is frightening people with the idea that the bull market has gone on for too long. And there is a lot of pseudo-science that gets peddled around the market these days on this theme about share market cycles and how long bull markets should last. In this video and edited transcript below, Emma Davidson poses the question to Miles Staude of whether we should be worried by how long the current bull market has lasted.
The news story we are all going to start reading in the first half of next year is that come June 2018, this will be the longest S&P 500 bull market on record
Next year’s news story
The news story we are all going to start reading in the first half of next year is that come June 2018, this will be the longest S&P 500 bull market on record. Which makes for good news, but taken on its own is a nonsense reason to sell your shares. Share markets do not move up and down based on some mystical idea about how long cycles should last, they price in the markets best estimate of future earnings expectations, that’s all they do.
Irrational Market Exuberance
The idea of watching bull market cycles is really based on the notion of being vigilant for periods of irrational market exuberance. Excessive optimism, excessive valuations. None of which is really evident today. In many ways, the current environment really fails that first test of being a bull market, excessive optimism, this has been one of the most unloved rallies in history.
It also hasn’t been a particularly big bull market in terms of how much share prices have risen. Looking at the US, while the current expansion is now nearly as long as the bull market of the 1990’s, the S&P has risen by only around half as much as it did over that same period of time.
Bull markets end for many reasons, old age is not one of them.
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Miles has over 19 years’ of experience in trading, investment management and research, covering a wide range of financial markets. He is the Portfolio Manager of the Global Value Fund (ASX: GVF) and serves as a Director on the Global Value Fund Board