When will the Bull Market end? A short but rather unsatisfying answer is that no one knows. However, from a more long-term, “big picture” viewpoint, there are a few key points we can make about this market.
First, while there were many question marks along the way during the first couple of years, it is obvious today that we have been in a Bull market since March of 2009. There has been a lot of discussion whether this is a “true” Bull market or just a “cyclical Bull” in the middle of a secular Bear, but I think it is clear at this point in time with the markets up over 150% in the last 5 years: this is indeed a Bull market.
So, back to the original question, when will the Bull market end? Ken Fisher (market strategist and money manager) has talked about this often over the years and I think puts it well when he describes two things that stop a Bull market: 1) they run out of steam or 2) they run up against a wall.
They Run Out of Steam
The legendary investor John Templeton once said, “there are four phases of a bull market: they are born in pessimism, grow in skepticism, mature in optimism and die in euphoria.” Essentially, the way a Bull market runs out of steam is that it simply has nothing else to worry about and becomes euphoric.
They Run Up Against a Wall
How does the wall work? The wall is coming up against some new piece of information that is a “game-changer.” An example of a potential wall in the future is currently happening in Russia, Ukraine and Crimea. Today, I would argue that it is a political event, not necessarily an economic event. But, if you assume the situation escalates into a full-scale civil war in Europe, you could see the potential of it becoming a “wall” that could stop the Bull market. We saw this in 2008, when the wall was the sub-prime mortgage market and the wholesale freezing of liquidity. That was certainly a game-changer and in turn, created a wall.
Where Are We Today?
There are many potential walls out there: Russia/Ukraine, inflation, deflation, significantly higher interest rates, etc. However, at this point we simply don’t know for sure if any of these will ever indeed become a “wall”. A lot of things that look like they could become a “wall” turn out to just be a bump in the road.
So what about the Bull market just fading away? I think based on John Templeton’s four phases of a Bull market, it sure seems like today we are “maturing on optimism.” We have seen the general market sentiment swing optimistic in the last year, and I think there is a legitimate argument that we are closer to the end of this Bull market than we are to the beginning.
What Do We Do?
Given this background, I think there are several thoughts that will help guide us along the way. It is important to realize that we all have the same problem: seeing and predicting the short-term future accurately is generally impossible. Our view point is to never believe anyone that says they can predict the future. Therefore, trying to “time the market” in order to ease the short-term risk of market volatility only increases the long-term risk of not reaching your goals. However, when the markets do change (not if, but when), they will present long-term opportunities. The key is being ready to take advantage of these opportunities when they arise.
