We appear, for now, to have recovered from the market’s volcanic eruptions of February. Today, March 12, 2018, was a down day, I know, but those things are going to happen. Moreover, you have to expect that after the market rises 2+% the week before and 1.7% on the prior trading day. Remember, markets rise, on average, only 2/3rds of the time.
Now, after the terrors of last month, I’m calling a timeout for a huddle. I want to bring in some “friends.” I want you to meet and listen to a few people who know lots and lots about the market – not today’s market or next week. But the market. Period. And they want to tell you that, very likely, we are still very much in a bull market. The voices you will read in our huddle are those of Jeff Saut, the Chief Investment Officer for Raymond James; Leon Tuey, a now-retired, revered stock analyst, based in Vancouver, British Columbia; and Warren Buffett, who needs no introduction.
I’ll begin the huddle with a Jeff Saut quote from today that says we are still in a “secular bull market.”
“Secular bull markets last 14+ years and tend to compound money at a double-digit return per year. The secular bull market of 1949-to-1966 compounded money at 11.41% per years basis the S&P 500. The 1982-to-2000 secular bull market compounded money at 14.38%. Were there pullbacks in those secular bull markets? You bet there were, but it didn’t stop the secular bull market. And there, ladies and gentlemen, is the most misunderstood point about bull markets. Most pundits cut the 1949 – 1966 Bull Run off in 1956 when the stock market took a ~21% “hit” because Egypt attempted to take over the Suez Canal, but that did not stop the bull market. Fast forward to the 1982 – 2000 secular bull market, which many participants cut off in 1987 due to the crash, but neither did that stop the bull market. We think the current secular bull market is going to be bigger than both of those secular bull markets.
“It has been said that an investor will experience three secular bull markets in their life time. In the first one, you will not have enough money to take advantage of it. In the third one, you will be too old to take the amount of risk to really take advantage of it. Therefore, you had better take full advantage of the second bull market. Most baby boomers were not old enough to do anything with the 1949 – 1966 “run.” Moreover, most boomers did not have enough money to take full advantage of the 1982 – 2000 rally, except near the end of that Bull Run. And then most did not heed the Dow Theory “sell signal” that occurred on September 23, 1999, so they gave back much of their late-cycle gains. Consequently, they need to take full advantage of this secular bull market, which we continue to believe has years left to run. And there is yet another much misunderstood point.
“Most believe this bull market began on March 9, 2009. However, the majority of stocks made their “lows” on October 10, 2008. At that time, we wrote that 92.6% of all stocks traded made new annual lows. Sure, the indices went lower into March 2009, but the majority of stocks bottomed in October 2008. That is where we think the current secular bull market began. The bottoming sequence was almost classic. We made the “selling climax” low on October 10, 2008 followed by a “throwback rally,” that failed, leading to the undercut low of March 6, 2009, which was below those October 2008 selling-climax lows. As an aside, this was the same bottoming chart pattern that we identified in February 2018 when we said to buy the “undercut low” that occurred on February 9, but we digress. Such bull markets also tend to have three upside “legs” to them. We believe the first leg began in October 2008 and ended in May 2015. The second leg began in February of 2016. The second leg is ALWAYS the longest and strongest. Once the second leg ends we should experience another upside consolidation like the one between May of 2015 and February 2016. Eventually the indices should resolve out of that consolidation on the upside and begin the third, or speculative, leg of the secular bull market. For example, the third leg of the 1982 – 2000 “run” started in late 1994 and lasted until the spring of 2000. Regrettably, there are not many of us still around that have seen a secular bull market, which is why so many refuse to trust this one.”
Jeff then turns our huddle over to Leon Tuey, whose comments I have put in italics:
“One savvy seer, however, that has seen such Bull Runs is our friend Leon Tuey, who is one of the best technical analysts on Wall Street. Recently (March 6, 2018) Leon wrote a report titled “Endless Worries.” To wit:
“One of the key features of this great bull market is investor sentiment. October 10, 2018 will be the 10th anniversary of this great bull market. Yet, from its beginning to date, investors are burdened by worries, even when there is nothing to worry about. Global depression, China’s huge debt and empty cities, the European Debt Crisis, the Arab Spring, the Japanese Tsunami and nuclear plant meltdown, Capitol Hill gridlock, the U.S. election were some of the concerns that troubled investors. More recently, they worry about inflation, Fed tightening, and trade wars. They worry endlessly. Not surprisingly, the market always climbs a wall of worry.
“In early February, fear was widespread and globally, investors panicked. Consequently, I concluded that peak selling intensity was witnessed and the market had entered a low-risk, high-reward juncture point and felt the after period of base-building, that the bull market would resume. Moreover, investors were advised to emphasize stock selection rather than worrying about the S&P 500. If you are worried, you are among the majority. Last Friday, the CNN Fear & Greed Index stood at 8, indicating extreme fear. Also, the Barron’s Insider Transaction Ratio dropped to 9. Readings below 12.1 are bullish. Moreover, last week, the AAII Sentiment Survey showed that the Bullish percent dropped to 37.3%. Also, it is interesting to note that in February, the TD Ameritrade Index registered its biggest monthly-drop ever; small investors bolted for the exit. Gripped by fear, investors panicked. Clearly, sentiment backdrop is ideal. Remember what Warren Buffett said – “Be fearful when others are greedy and be greedy when others fearful.”
And, now, this final comment from Leon, this morning, to Jeff:
“Many are waiting for the market to bottom or a “test” not realizing the market bottomed in early February when the whole world panicked and the great bull market had resumed. Last week, the Advance-Declines [lines] for the S&P, Dow, and many other indices closed at record highs. Clearly, recent events show that investors are still haunted by the bear market of 2007-2009. Their optimism in early January was only skin-deep as optimism turned to fear almost overnight.”
Back to me now: We don’t know what is ahead. But there are lots of reasons I’ve enumerated in recent blogs (you might go back and look at them) to believe that more of what we’re experienced in the last 16 months will be coming at us. Not without time-outs, of course, or occasional down-drafts and scary stuff for the faint-of-heart. Savers beware! But if you can live with the occasional hiccups and volatility, I’d advise you stay aboard for the ride.
Now, get out there and play some ball.