The market ended the first quarter mostly flat, with the S&P500 up 1.30% YTD and the NASDAQ up a mere 0.53%.
To put these meager increases in perspective, last year at this time the indexes were up 10.6% and 8.5%; and in 2012 first quarter increases were 12.6% and 18.97%.
Has the 5 year bull market ran its course? It’s too early to tell, but history can provide some insight. Since World War II (nearly 70 years), besides the current market, there were 5 bull markets that lasted at least 5 years. Of those 5 bull markets, 3 went on to rally for a sixth straight year.
As one would expect, those 3 markets with a 6 year winning streak were uncommon:
- 1949-1955 up 38% in the sixth year
- 1974-1980 up 18% in the sixth year
- 1990-1996 up 21% in the sixth year [and continued to rally until imploding in the 2000 dotcom bubble]
Notice any trends?
- ‘49-55: post-WWII the USA emerged as a superpower and dominated global trade.
- ’90-96: end of the Cold War the USA becomes sole superpower with the collapse of USSR.
- ‘74-80: end of Vietnam era BUT this is more of an anomaly, the market was driven higher due to OPEC oil inflation not a post war peace dividend.
What then of the current bull market? Some might argue that we’re in a post war era (Iraq & Afghanistan). I wouldn’t make that argument for a number of reasons, not the least of which- Guantanamo is still a POW camp and our strategic drone missile reserve is depleted due to unending attacks throughout the Middle East.
In any case, no one would make the argument that the USA is in a global leadership position posed to dominate world trade as in previous post war eras. I believe that was the key to the previous long winning streaks- American global domination…and I don’t see anything like that on the current horizon.
No, it’s not all gloom and doom. In a future article I’ll discuss why the markets might be at a fair valuation.
Oh…you might be wondering what happened to the two bull markets that didn’t go on for a sixth year winning streak? They ended very badly, down 21% and 42%.
So what am I doing? As noted in a previous article, I took profits early and for now remain mostly in cash, patiently observing market conditions.