Monday, March 9, marked the six-year anniversary of the current bull market, making this the fourth-longest bull run in history. The S&P 500 index fell to 676 on March 9, 2009, a 57 percent drop from its previous high in 2007. Since then, it has gained more than 200 percent and nearly tripled in value, closing at 2,089 on March 19.
Meanwhile, the Dow Jones Industrial Average has also nearly tripled in valued, rising from 6,547 on March 9, 2009, to close at 17,959 on March 19 after topping 18,000 earlier in the month.
In fact, this is now the longest-running bull market in more than 85 years — going back to the bull market of the “Roaring ‘20s,” which ended with the Crash of 1929 on September 3, 1929. During this bull run, the Dow soared by 500 percent over about eight years. Incidentally, it took 25 years for the Dow to surpass its peak level of 381 at the end of the bull run of the 1920s.
History has shown, however, that bull markets do not go on forever. So what is in store next for the stock market?
You can always find pundits who believe that the stock market is going to continue to rise to new heights, as well as those who believe that the bull has run its course and the market is poised for a fall. However, one voice that is worth listening to is that of Art Hogan, a veteran market strategist who called the end of the last bear market and the beginning of the current bull.
Hogan based his call, which became known as “Hogan’s Bottom,” on the fact that at the end of 2008, stocks had fallen even farther than they did at the end of 1929. He also believed that the federal government would take aggressive action, which it did by bailing out big banks, lowering interest rates to nearly zero and keeping them there, and launching the quantitative easing (or QE) bond-buying program.
For his part, Hogan does not think the bull has run its full course yet. Nor does he believe that a stock market “bubble” has formed. For one thing, he points out that government and corporate bonds currently do not offer much of an alternative for investors seeking high returns. In addition, corporate earnings remain strong and the U.S. economy — unlike most other developed nations’ economies — is finally growing.
He does caution, however, that U.S. stock valuations are high, so you need to be careful when choosing in which sectors to invest. Hogan prefers companies that manufacture consumer products or provide services to consumers, like apparel manufacturers and restaurants, since he thinks consumer spending will remain strong as long as energy prices stay low.
Hogan is not the only stock market analyst who remains bullish. In fact, relatively few stock market analysts are calling for an end to the bull run anytime soon. This is due primarily to the strength of the U.S. economy, low inflation and aggressive stimulus moves by other nations’ central banks, including the Bank of Japan and the European Central Bank, which should also help U.S. companies.
In addition, there have not been any irrational excesses accompanying this bull market, like the tech bubble that burst in the early 2000s or the housing bubble that burst in 2007-2008. Ironically, the sluggish economic recovery that has been so frustrating the past few years served to tamp down the kind of “irrational exuberance” (as Alan Greenspan famously put it back in 1996) that led to these past excesses.
The most common cause of the end of a bull market is a recession, or the expectation of a recession among investors. Four of the five bull markets since 1970 ended in this manner. So one of the main questions in trying to forecast when this bull might end is whether a recession is in the cards.
Few analysts see one, though this view is not unanimous. The chief investment officer for one mutual fund company, for example, sees a much stronger probability of recession in the near term than most other analysts do, noting that growth is still fairly sluggish when compared to past recoveries. If the current growth rate continues, he points out, it will be harder for businesses to increase sales and grow earnings.
A strengthening dollar — which is already at a 12-year high against the Euro — could also hamper earnings by making U.S. goods more expensive overseas. Finally, a rise in inflation is another potential threat to the bull market, as this could cause a bond sell-off that might disrupt financial markets.
With this bull getting a little long in the tooth, should you reduce your risk exposure and take some money off the table by selling some stocks and booking the gains? Alternatively, is it smarter to keep your stock allocation where it is, or maybe even increase it?
For now, the best advice for most investors is to stick to your long-term investing strategy and not pay too much attention to macro movements in the stock market. This includes how long a bull market (or bear market, for that matter) has lasted so far and how much longer it may last going forward.
In particular, now is probably a good time to rebalance your portfolio. Big stock market moves can disrupt the balance of stocks, bonds and cash equivalents. When this occurs, you should rebalance your portfolio by selling assets in classes that are over-weighted (like stocks) and using the proceeds to buy assets in classes that are under-weighted.
As you rebalance, remember the importance of diversification. You can invest in many different stock market segments, including large-, mid- and small-cap stocks; international and emerging markets; and specific industry sectors like financials, consumer discretionaries and technology. By spreading your stock market investments out among several of these different segments, you can lessen your exposure to a stock market correction if one occurs.
Of course, no one has a crystal ball to see exactly when the bull market will end. So keep your eye on the big picture and the long term as you make decisions about buying and selling stocks in the midst of this long-running bull market.