What Now?

I got an email last week that read, ‘What do I do now?’ I replied, ‘I don’t know what you mean.’ She wrote back, ‘I didn’t buy the February lows that your model told us to buy and I didn’t buy any of the stocks on your ‘buy list’ the Monday following the Brexit Bashing. So what do I do now?’ I told her I continue to think we remain in the same secular bull market that began in March of 2009 and I think it has a lot farther to go. Yes, I know the equity markets get overbought from time to time. Yes, I know there will be pullbacks. Yes, I know certain valuation metrics are historically expensive, but I also know how secular bull markets work. I have written many times about the fact that there are not many of us left. There are not many of us that have seen a secular bull market. I don’t know where the market mantra came from that a 20% rally is a bull market and a 20% decline is a bear market, but I do not believe that’s the case. Well, it might be the case in the shorter term for tactical bull and bear markets, but it’s not the case for secular bull markets!
Secular bull markets tend to last 14 – 15 years and compound at 16% per year (on average). Study the Dow Jones Industrial Average chart (chart 1). Since the 1929 ‘crash’ there has been just two secular bull markets: 1949 to 1966 and 1982 to 2000. Were there pullbacks during those secular ‘bulls?’ You bet there were. The President Kennedy ‘steel crisis’ of 1962 lopped ~26% off of the D-J Industrials in a pretty short time. Then there was the slight accident in October of 1987 that left the Industrials off 22.6% in a single day, but it was not the end of either of those secular bull markets. Again, study the chart. Every time the D-J Industrial Average (INDU/18570.85) has emerged from a multi-year trading range (1933 – 1949, 1966 – 1982, 2000 – 2013) the markets has entered a secular bull market. I don’t think it is any different this time.

This post was published at FinancialSense on 07/25/2016.