21 AUGUST 2018


by Raul Elizalde

This article also appeared on Forbes.com.

Many media stories declared that the stock market broke the record for longevity on August 22, 2018. This would be quite an achievement if it were true. Alas, it is not.

As FINRA (the Financial Industry Regulatory Authority) has noted, the longest run belongs to the 12 1/2-year period running from October 1987 through March 2000. The current bull market, which started in 2009, will need to run through 2021 to break that record.

Part of the problem is that defining a bull market is difficult.

A bull market is loosely understood as a period during which stocks keep going up without falling more than 20%. What, then, are we to make of the period between July 16 and October 11, 1990, when the S&P 500 fell 19.9% from its peak? Some analysts round the plunge up to 20% and declare that day the end of that bull market, which then makes the current rally the longest. But those are not quite the "rules", at least according to FINRA.

Another problem is that is not easy to define a “bear market” either. Does a bear market start right after the 20% decline is reached, or is it measured from the previous high? After the 20% plunge, most analysts backtrack to the day of the previous high and mark that date as the beginning of the bear market. But doing so leaves a weird intermediate period that is part both of a bull and a bear market, as in the graph below. So when does the bull market actually end?

All-time highs are perhaps more meaningful milestones. For the S&P 500, that was the close of 2872.27 on January 26, 2018 and it is still the highest at the time of this writing. But one could also make the case that such level should be adjusted for inflation, for example, or that the intra-day high, not the close, should be viewed as the record.

And whether the market index is really a good proxy for the whole market is hard to say, especially when companies like Amazon, Apple or Alphabet account for such large percentage of the index itself. The market index could be reaching a record level just on the advance of a few large companies, rather than on a general tide lifting all stocks.

The simple fact is that the stock market has been going up for quite a while, but no milestone was reached on August 22, 2018 that has any meaning – not more meaning, in fact, than when market indices reach a round number, like 25,000 for the DJIA or 2800 for the S&P 500. Those are just numbers.

A more important measurement may be the longevity of economic growth. According to the designation of expansions and contractions of the National Bureau of Economic Research (NBER), the U.S. economy has been growing since June 2009.

At 110 months, the current expansion is the second longest in the nation’s history, after the 120-month growth streak recorded between March 1991 and March 2001. The economy will have to grow past June 2019 to surpass it, and there are many questions about whether it can get that far.

Whether the stock market has gone up longer than ever is a question neither relevant not answerable with any precision. What is more important is that the longer it goes, the closer the time when it will meet its inevitable end.

Unfortunately, market participants and their financial advisors tend to see higher prices and bull-market longevity as a sign that staying in the game is more important than protecting gains. This could be imprudent. Given that investors are at the mercy of whatever the market does, they should remember that not falling into complacency is one of the few things that they can actually control.