Longest Bull Market… So What?

You’ve probably read a lot about how today marks the longest US equity bull market on record, but does it actually mean anything? The current market rally has run 3,453 days and the S&P 500 has not fallen by +20% (the common definition of a bear market) since March 9, 2009. While it makes for a fun stat at a cocktail party, we don’t view it as an indicator of positive or negative performance for US stocks going forward.

We will freely admit that the current bull market is a long one. Should the S&P 500 end the year higher, it will mark the first time the index has had positive total returns for ten consecutive years. As of last year, it’s tied with the 1990s (9 straight years of positive total returns) and ahead of the 1980s (8 years).

So does something have to give? We understand why this data could make some investors uneasy as it approaches unprecedented territory. That said, they are just numbers and not indicative of future returns. A few points here:

#1 – Investors can still debate when the current bull market actually started. While the S&P 500 gained 25.9% and 14.8% in 2009 and 2010 respectively on a total return basis, the market was clawing its way out of the hole it fell into in 2008 (-36.6%). Rather than rallying on strong economic fundamentals, it was recovering on the relief that the global financial system did not collapse.

#2 – This bull market has been unimpressive when looking at long run compounded rates of return. The trailing 20-year CAGR for the S&P 500 ending last year is only 7.1%, which is among the lowest figures since the Great Depression. For the two decades ending in 2000, it was 15.5%. The record high was 17.7% in 1999 dating back to 1947.

When adjusting for CPI inflation, the trailing 20-year CAGR ending in 2017 is only 5.5%. The trailing 20-years ending in 2000 was 13.7% (the peak dating back to 1947).

#3 – The market’s long run compounded returns will only fall further this year, regardless of the whole “longest bull market ever” narrative. Even if the S&P 500 rises +10% in 2018, the trailing 20-year CAGR through the rest of this year would fall to 6.3% on a nominal basis and 4.2% inflation-adjusted.

Bottom line, the current bull market may be longer than others, but it hasn’t resulted in better than average long run returns. It also hasn’t fully helped US equities recover from the long-term damage of the dot com bubble bursting in the early 2000s or financial crisis in 2008. At the end of the day, investors don’t care about the length of a rally, but how much money they make over time. And on that basis, we have a long way to go before US equity investors can really cheer.