:::: S&P 500 DecisionPoint Weekly Wrap :::: By Mark Hulbert | May 16, 2017
U.S. stock market rally won’t die of natural causes
Any of a number of things can cause bull markets to come to an end, but old age is not one of them.
That’s important to remember because, even as the S&P 500 SPX, +0.48% and many other major market averages reach new all-time highs, there’s widespread concern about how old the current bull market is. The unspoken narrative is that at some point a bull market gets so old that it simply keels over dead.
Yet I could find precious little statistical support for this narrative. To be sure, the statistics involved are tricky, since it is undeniably — though trivially — true that all bull markets eventually come to an end. So one could easily construct a statistical test in which the probability of a new bear market approaches 100% when the prior bull market’s age approaches certain thresholds.
But that would prove nothing. A more helpful measure is the probability that a new bear market would begin in the subsequent calendar month. This puts a time limit on how soon a bull market will die. And there is no statistically detectable correlation between such probabilities and a bull market’s age.
I reached this conclusion by focusing on the calendar of bull and bear markets maintained by Ned Davis Research, which extends back to 1900; my findings are summarized in the chart below. When past bull markets were less than one year old, for example, there was a 5.4% probability at any given time that a new bear market would begin within the next calendar month. For bull markets that were more than five years old, in contrast, the comparable probability was actually lower — at 4.6%.
Before you make anything of this, however, you should know that the differences plotted in the accompanying charge are not significant at the 95% confidence level that statisticians typically use when determining if a pattern is genuine.
You furthermore should exercise great care to avoid concluding that my data gives the bull market a new lease on life. Yes, the probability a bear market will begin in the subsequent month is always low. But that doesn’t mean the current bull market is on sounder footing than it was before you read this column.
All that the data actually show is that age in and of itself is not a reason for you to worry. All non-age factors for such a concern remain every bit as relevant.
While I’m on the subject of the bull market’s age, you should also know that the bull market we’re currently in did not necessarily start on Mar. 9, 2009. In fact, according to the rigorous criteria Ned Davis Research employs for determining when bull markets begin and end, there have been two bear markets since 2009: between April and November 2011, and between May 2015 and February 2016.
Per their calendar, therefore, the current bull market is just 15 months old. That’s a far cry from the 8+ years assumed by those who date the current bull market back to March 2009. So even if sheer age were a reason why bull markets die, you wouldn’t need to worry about the one we’re in now.
Needless to say, you can disagree with Ned Davis’s bull-market calendar. But my experience is that many who insist that the bull market began in March 2009 have selective memories, forgetting that some major market averages fell by more than 20% in those two periods: April to November 2011, and May 2015 to February 2016.
The bottom line: Those who argue that the bull market might die of old age are betraying more information about themselves and their preconceived notions than they are revealing anything objectively important about the stock market itself.
News 
Market Data 
Discover 
