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How Long Will This Bull Market Last?

Terry Mullen
Mar 7, 2017

During the depths of the financial crisis, housing crash and resulting bear market, it was hard to envision what would come next. The Great Recession was so deep and came on so suddenly, that many individual investors wondered how things would ever get better. Back then, investor pessimism was at a fever pitch. Many bailed out of mutual funds, raided retirement savings and abandoned the stock market in droves.

As a financial professional and the owner of a financial planning or wealth management practice, you undoubtedly fielded your fair share of panicked meetings and frantic phone calls and text messages, as clients sought advice in a sinking market.

Back then, it was hard to envision a silver lining in the crash. But now, hindsight illustrates the prolonged struggle back. Since the most recent bear market bottomed out, the S&P 500 index has rallied more than 230%, an impressive feat for a comatose market less than a decade ago. When dividends are factored in, the S&P returns are even more impressive, with a total return of more than 270%. As of February 27, 2017, the S&P 500 achieved yet another record close at 2369.75, an impressive feat for a market that bottomed out on March 9, 2009, at less than 700.

The current market has come so far so fast that many traders are now wondering just how long can this current bull market last? With the race to Dow 20,000 now in the rear-view mirror, many financial planners, and their clients are fretting that a new bear market could be right around the corner.

If it was possible to predict the next bear market, every financial advisor and every one of their clients would be wealthy beyond belief. The truth is no one can accurately predict market tops and bottoms every time, and getting it wrong can have dire consequences. Staying in the market during a severe downturn can be frightening, but being out of the market during its best days could cost clients even more.

No one can predict just where the current bull market will top out, or when the party will come to an end. For one thing, no one can agree on what has caused the recent run-up in stock prices. Some give the credit to the presidential election and a new Republican majority Congress, while others cite rising corporate earnings and a reasonable price/earnings ratio.

Whatever the reason, predicting when the current bull market will end could be an exercise in frustration. What financial professionals can do instead is look back at past bull markets, including their durations and the factors that ultimately brought them to an end.

There have been 25 bull markets since the stock market crash of 1929, and the average duration of those advances is 31 months. That means the current bull market is already three times longer than average, one more reason for investors to proceed with caution and for advisors to reassess their clients' risk tolerance and asset allocations.

The current bull market is also an outlier in terms of performance. Since the 1929 crash, the average return in a bull market has been just over 100%, or nearly two-thirds less than the current market environment.

So does that mean that investors should head for the hills and put their portfolios in cash? Not necessarily. Being out of the market on its best days can be even more damaging to wealth creation that being out of the market during its worst periods. Timing the market is difficult even for seasoned professionals, and being successful means being right not once but twice. Not only would an investor have to accurately call the top of the current bull market, they would have to be just as prescient at determining the bottom of the next bear market cycle. For the vast majority of investors, creating a well-balanced portfolio, establishing risk tolerance and determining the proper asset allocation is a much more sound strategy than trying to time the market.

In the meantime, financial professionals, and their clients can learn a lot from the decline of previous bull markets. While the exact combination of factors differs from one market cycle to the next, there are a number of common scenarios that have signaled the end of a bull market and the emergence of the dreaded bear.

Bear market declines are often preceded by periods of rising interest rates, and by the emergence of an inverted yield curve. When the yield curve is inverted, long-term fixed income investments yield less than their shorter-term counterparts, a scenario that is not currently in place.

High inflation is another common trigger for a bear market decline, and again a factor that is not currently in evidence. While inflation has spiked a bit in recent months, price increases remain below the Federal Reserve target of two percent.

Tight money and declining corporate earnings are two more factors that often trigger the end of a bull market cycle. So far, monetary policy has been very accommodative, with the Federal Reserve doing everything it can to keep the economy growing, albeit at its current slow rate. Corporate earnings are also growing at a steady clip, even as price/earnings ratios remain reasonable based on past bull markets.

A decline in employment could also trigger the end of the current bull market, but like the other factors on our list, those employment declines seem far off at the moment. With unemployment currently less than five percent and even the U6 underemployment rate ticking downward, it does not seem that a decline in employment is on the horizon.

That does not mean, of course, that a new bear market is out of the question, or that you or your clients can afford to be complacent. Complacency is always a danger in a bull market, especially one as protracted and impressive as the one we are now in. A black swan event could come along at any time, from a major terrorist attack to a spike in global instability. As a financial professional, you owe it to yourself, and your clients, to be ever vigilant.

The answer to the question of how long the current bull market will last is unanswerable, at least until the market has finally topped out. Unfortunately, there is no way to pinpoint either the date or the stock market level where that will occur. Until then, all you can do is strive to serve your clients to the best of your ability by making sure their risk tolerance, and their asset allocations, are in line with their expectations and long-term goals.

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