Is This a Secular Bull Market?

Nearly six years of better-than-average gains begs the question: Has a secular bull market materialized on Wall Street?
Of all the jargon-y financial terms I had to learn when I first became an investment writer, “secular bull market” was one of the most confounding.
“What is it?” I asked no one in particular. “A bull market that doesn’t go to church?”
A quick Google search revealed the answer.
According to Investopedia, a “secular market” (bull or bear) is defined as the following:
“A market driven by forces that could be in place for many years, causing (prices) to rise or fall over a long period of time.”
How long? Generally speaking, a secular bull market means above-average annualized returns for at least the better part of a decade.
Now that I finally have a grasp on what a secular bull market is, that brings me to a far more relevant question: Are we in a secular bull market right now?
Liz Ann Sonders of Charles Schwab seems to think so. She told Business Insider that the current bull market is “secular, not cyclical.” Another analyst believes U.S. stocks are poised to achieve average returns of 8% to 10% for “at least the next three to five years.”
From 1950-2009, the average annual return in the S&P 500 (not including dividend yields) was 7.2%. Since 2009, the year the worst recession since the Great Depression came to its merciful end, the S&P 500 has posted average annual gains of 15.9%. And that doesn’t include this year’s returns, which, with three weeks of trading to go, stands at a strong 11.3%.
If you include 2014, that’s five of the last six years that U.S. stocks have outperformed their historical norm. The 15.1% average annual return during that span is more than double the 7.2% average of the previous 60 years.
So it’s not outlandish to call this a “secular bull market.”
People keep bracing for a correction, calling the market overbought. But a Wall Street comeuppance hasn’t come. There hasn’t been a pullback of at least 10% – the usual barometer for a true “correction” – since July 2011. There hasn’t been a pullback of at least 20% since March 2009, when stocks hit a multi-year bottom at the tail end of the recession (see chart below).

S&P 500 Performance Chart: March 2009-Present


There aren’t many big dips in that chart. And when there have been big dips, they haven’t lasted very long. Every time stocks have fallen sharply, they’ve bounced back higher than they were before within a matter of months.
Secular bull markets can last a long time. From 1982 through 1999, the S&P 500 finished in the black all but two years. It finished with double-digit returns in 12 of the 18 years. Another secular bull market lasted from 1949 to 1968.
So six years into the current bull run, it’s possible we’re merely one-third of the way into a secular bull market.
It’s also possible that the doomsayers are right, and that an extended collapse is right around the corner.
Given the improvements in the U.S. economy since the recession – unemployment is at a six-year low, corporate profits are growing steadily, Federal stimulus efforts have ceased – it may be more likely to expect another 10-12 years of above-average returns than an extended market crash like we saw around the turn of the century when the dot-com bubble burst.
For now at least, there are no real signs that a long-awaited market correction is imminent. Invest freely and without fear – secular bull market or not.

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