New Secular Bull: Yes or No?
- Joshua M Brown
- January 21st, 2013
Many of us are operating under the assumption that the rally in US stocks from the lows of March 2009 has constituted a CYCLICAL bull market that's occurred within the context of a larger SECULAR bear market that began in March 2000. This heuristic makes a great deal of sense historically - there have been three prior secular bear markets, each of which contained several cyclical bull and bear markets within them. The last secular bear market, from 1966 to 1982, ended when stocks broke out in '82 and just continued higher virtually nonstop for 18 years.
But with all of the indices at or near new all-time highs (save for the Nasdaq, perennially in the shadow of its mania highs north of 5000), many are beginning to wonder whether or not the secular bear that began 13 years ago has finally been slain. Here's Raymond James chief strategist Jeff Saut wondering aloud in Barron's this weekend:
"There's a 25% possibility we're in a new secular bull market, and no one believes it," says Jeffrey Saut, chief investment strategist at Raymond James. Supporting his case: On Dec. 31 and Jan. 2, 90% of stocks traded higher. Such broad-based strength is usually followed by more strength. After two 90%-up days, the market has climbed an additional 6.8% one month later 83% of the time and 12.8% three months later 100% of the time, says Saut.
Now of course, Jeff is not committing to this possibility, simply discussing the ramifications of it. But Ralph Acampora, one of the pioneers of technical analysis and no shrinking violet when it comes to making bold calls, has already decided that this is it. My friend JC over at All Star Charts collected a masterful Twitter rant from Ralph for a post on January 9th. Essentially Ralph makes his case by citing the predominantly negative and skeptical tone of the commentariat, the blow-off top in treasury yields and the undeniably positive breadth between disparate stocks, sectors and even global markets (see: 11 Reasons Why Ralph Acampora is a Secular Bull ).
I haven't chosen a side personally. I am happy to accept that this is still something cyclical and that the next 30% comeuppance is somewhere off in the distance to remind us how we haven't quite outrun our problems yet. The chief argument I hear being made against this being a secular bull is that no prior secular bull has ever begun from a PE multiple above ten on the broad market. And, as the bears will say, we never quite got down to that level nor did we spend enough time bumping along the bottom.
They could be right, of course, but their fatal flaw could be the dearth of data they're working with to create this so-called historical precedent - there are only three prior secular bear markets with which to compare this one in the last 100 years - not exactly a scientific sample set, is it?
The good news for me and most investors is that making an iron-clad declaration for either secular bull or bear camp at this juncture is not necessary. There'll be a better time to make this bet, I think. Here's a memorable quote from the Arnold Rothstein character on HBO's Boardwalk Empire:
"I've made my living in large part as a gambler. Some days I make 20 bets. Some days I make none. Weeks, sometimes months in fact, when I make no bets at all because there simply is no play. So I wait, plan, marshal my resources and when I finally see an opportunity and there is a bet to make, I bet it all."
At this juncture, Ol' Arnold would be waiting to see in which direction he ought to bet. Doubtless he'd have enough long positions on to benefit from higher prices, which is now the path of least resistance, but he'd also have plenty of firepower set aside. Just in case.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.