Bull-market age alone does not signal an imminent downturn

what happened

Wall Street’s current bull market is marking its fourth anniversary. Ned Davis Research’s calendar lists 38 U.S. bull markets since 1900, with 33 ending sooner; their average duration was 25 months and the median was 22 months. MarketWatch says that comparison does not show age itself causes a bull market to end.

Historically, downturns have more often followed recessions, excessive investor enthusiasm or external shocks. Thirteen of the 22 bear markets since 1950 were accompanied by a recession. Over the past four years, the S&P 500 delivered a 131% cumulative total return, equal to 23.3% annualized and nearly three times the market’s historical average.

That performance is not a record, however. Edward McQuarrie and William Bernstein reviewed four-year periods dating back to the late 1700s and found many instances of stronger gains. Their review of 17.5-year periods since 2009 likewise found nothing unusual about the market’s advance. As a result, the bull market’s age and rise alone do not establish that a bear market is imminent.

why it matters

For markets, the analysis suggests that cycle age and cumulative gains are weaker signals than recessions, investor exuberance and external shocks when assessing downside risks.

instruments