How Long Can We Expect The Bull Market To Continue

A recent interview of Jeffrey Saut, Raymond James’ veteran Chief Investment Strategist, in Barron’s made note that they felt the stock market would double within the next eight to nine years, and that we are in a long-term bull market. The notion of the stock market doubling and a bull market is incomprehensible to many of us that have lived through the 2000’s, the ’87 crash or any of the down years prior to that. However, as hard as it might be to believe, this is actually something that we’ve seen before.

Think of a stock market bull like a sports dynasty. Think Yankees, Bulls, Patriots, Lakers, Celtics, Tiger Woods or Serena Williams… all of these teams or individuals dominated their sports for an extended period of time.

Now think of a bear market like the Cleveland Browns. Nobody expects them to win heading into the season… or ever for that matter.

However, with the teams and sports figures that are in a winning dynasty, people always assume they will win everything at the beginning of the year.

I mean, if I were to ask you at the beginning of the baseball season who will win the World Series in the late 90’s who would you say?

If you follow baseball, you probably answered the Yankees.

The Yankees are a great example. Their dynasty lasted 11 years from 1996 to 2007. Over this time period they were probably predicted to win the World Series all 11 years.

Here’s how it actually broke out over those 11 years:

  • 10 Division titles… these would be deemed just ok years
  • 6 American League Championships, reached the World Series… these would be deemed good years
  • 4 World Series Championships… these would be great years… or for the market huge return years.

 

The market right now is in dynasty mode, and it started in 2009. Those that realize this have predicted that the markets would win the “World Series” every year.

Let’s relate the market’s past six year returns to the World Series Championships, making the World Series, division titles and missing the playoffs:

  • 2009: 26.9% (World Series Champion)
  • 2010: 15% (American League Champion… went to World Series but lost)
  • 2011: 1.9% (Won the division)
  • 2012: 15.7% (American League Champion… went to World Series but lost)
  • 2013: 32.2% (World Series Champion)
  • 2014: 13.5% (American League Champion… went to World Series but lost)

 

So the next question is, what should an investor do during a market dynasty? We can continue to use the Yankees as an example to help answer this question.

The Yankees’ core team, Pettite, Jeter, Riveria, helped keep the team at a winning level through these years. The team also made strategic additions like Clemens, Soriano, A-Rod, but the core never changed.

That’s how we should think about investing in our portfolios during these times. We should stay true to our core investments, and then make strategic changes or additions as times change. Maybe having some Europe or Japan in our portfolio will help us better win the investing World Series. Even with these additions, though, we are always going to have exposure to Large Cap Stocks, International Stocks, Bonds, etc.

During a dynasty you do not want to do a complete overhaul. I mean heck, we don’t want to be the Marlins. They won a World Series, and then shipped off their whole team only to then struggle for years to win another World Series. They are not considered a dynasty.

The market has had a few dynasties in the past:

  • 1942 – 1966
  • 1982 – 2000

 

The average return for markets during these periods was 19.2%!

While the future performance of the stock market can never be guaranteed, the guy that makes the investment strategy decisions for Raymond James (a big firm) thinks that the markets will double in the next eight to nine years. Based on his prediction, he could even be underestimating the market given its history.

For us to get to the level where he sees the market moving, we would only need to rise by about 10% per year. That’s below the average we have seen in the dynasty periods of the past.

To top it off, today we are able to better take advantage of the dynasties than in the past, mainly because of the ability to utilize ETFs. Investing in an ETF allows us to invest in multiple stocks and/or bonds at once, and typically ETFs track the index. Meaning if the stock market is in a dynasty, we’re more likely to also enjoy those same wins when invested in an ETF since it’s following the lead of the stock market.

If you have additional questions on how you can invest in ETFs or how a stock market dynasty works, please shoot us a message on our Contact Us page.

 

Disclosure: This information is provided to you as a resource for informational purposes only.  It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors.  Past performance is not indicative of future results.  Investing involves risk including the possible loss of principal.  This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.