In your opinion, have we reset the clock?

[SecondCor521]

Hi all,

There seems to be a fairly prevalent belief that the US stock market goes in bull / bear cycles.

There also seems to be a belief - perhaps less common - that bull markets can "get long in the tooth" or "get tired". This has the usually unspoken implication that a bear market needs to occur in order to start a new bull market.

It seems pretty clear to me that if we had a 25% decline over the course of the next two years and then the market started upwards again, that most people who hold those two beliefs mentioned above would mark it as the start of a new bull market.

On the other hand, a 1% decline over the course of a few days is clearly not enough to mark the end of one bull market and the start of another.

I'm curious whether folks here think that the activity in the US stock market since late January constitutes enough of a decline over a long enough time that, if the market were to begin to go up again, you would consider it the start of a new bull market rather than the continuation of the old one.

I'm familiar with the definitions of bear markets and recessions, and I could go look up the percent declines in the various market indices, so I don't really need anyone to go into that.

More broadly, what criteria would be sufficient to you to demarcate the end of a previous bull market and the beginning of a new one? A bear market? A recession? An inversion of the yield curve? Investor sentiment? Unemployment or inflation? Sector rotation into consumer staples and utilities? Technical analysis? Feelings ("I'll know it when I see it")? Other?

In other words, what X would make you say, "After I see X, if the market goes up it's the start of a new bull market and not the continuation of the previous one?"

[Mods, if this belongs better in the stock picking forum, feel free to move. Thank you!]

 

[nash031]

These things are defined. A bull is a generally long run-up. A bear is when the market drops by 20% or more (a "correction" is 10% or more), with bears generally being much shorter than bulls. By those definitions, we had a correction, but the bull runs on.

Since you're asking board opinions... Bull? Bear? Who cares? Either way is short-term.

 

[OldShooter]

... Since you're asking board opinions... Bull? Bear? Who cares? ...

+1

 

[Totoro]

Curious: Why is this question important?

 

[Andre1969]

How you define these things is going to depend on your own personal experience with them. That, and given enough time, your perspective on these things will change.

As for the bit of turmoil that happened earlier this year? Well, I think at one point I was up almost 5% in January, but that got wiped out, plus a small portion of 2017's gains, in February. So, at the time it seemed like a big deal...although a 5% gain in less than a month isn't something you should expect to be entitled to...

However, once February closed out, and then March, and then April, that turmoil seemed like more of a hiccup, than a heart attack. And now, as of last night's close, I'm up about 3.8% for the year, it seems like a non-event. In a year, I probably will have forgotten about it.

To put it in perspective, I can remember losing about 15% in the course of a month, over the summer of 2011. I wasn't "made whole" again until sometime in 2012. 2011 was also the last year, since 2008, that I lost money. Now THAT was an event, in my book.

Another noticeable event, to me at least, was a cooling off period from around mid-2014, until perhaps mid-2016. I was still up around 5.6% in 2014, so it wasn't a total loss. In 2015, I think I was up around 1.8%...so basically, inflation. I think it bottomed out in early 2016, and at some point there was a correction of around 10%, but it did recover. I think I was up around 8.8% at the end of 2016, but the majority of that was in the last few months of the year.

 

[EvrClrx311]

I am a numbers and statistics guy... and without going into all of the details I can say the following:

I'm about 62% sure the market will go down over the next 12 months and about 38% sure it will go up.

Currently, on the long term horizon, we are sitting about 19.6% higher than the market 'ought' to be (for what it's worth, it's normal to be above or below it by even 30%, point is we straddle this line on the long term - sometimes spending years above, sometimes years below, and sometimes alternating above and below year after year). What I mean by that is that gravity, momentum, regression forces are all pulling us back to a long term trend that has remained linear on the LONG horizon (150+ years). If we were at that market average today, I'd say it's a 50-50 chance up or down. The higher we go above that long term line the more likely we are to go down in the short term (I use the word likely, lightly here)... point being these odds never deviate very far from 50-50 (60-40, or 40-60). Year by year it's anyone's guess what will actually happen. Mathematically, we are still just a little bit above the standard long term trend... I'd be happier if we were below it from a standpoint that stocks would be cheaper to buy (but then I'd also have less money... so eh... whatever).

My suggestion, in this market, is to stay put... if you care about long term growth. If you care greatly about short term... getting out of it now might be smart.

One other point on this... since the market forces are always pointing us higher, every year that line goes up as well. If we are flat for the next 27 months, then what we're sitting at today would then be back on that average.

The best way to look at this, as a long term investor... is to take 19.6% off of your total stock investments and look at your account as being worth that much... instead of what it's actually worth today. Then it won't sting if in the short term we drop just a little. Every year your account (in stocks) should go up 7.2% inflation adjusted (at least what you have invested in the S&P500), but the rub is that we don't follow it that linearly year by year... you'd have to span out to a 30 year horizon to recognize that consistency.

Cheers.

 

[Dtail]

I am a numbers and statistics guy... and without going into all of the details I can say the following:

I'm about 62% sure the market will go down over the next 12 months and about 38% sure it will go up.

Currently, on the long term horizon, we are sitting about 19.6% higher than the market 'ought' to be (for what it's worth, it's normal to be above or below it by even 30%, point is we straddle this line on the long term - sometimes spending years above, sometimes years below, and sometimes alternating above and below year after year). What I mean by that is that gravity, momentum, regression forces are all pulling us back to a long term trend that has remained linear on the LONG horizon (150+ years). If we were at that market average today, I'd say it's a 50-50 chance up or down. The higher we go above that long term line the more likely we are to go down in the short term (I use the word likely, lightly here)... point being these odds never deviate very far from 50-50 (60-40, or 40-60). Year by year it's anyone's guess what will actually happen. Mathematically, we are still just a little bit above the standard long term trend... I'd be happier if we were below it from a standpoint that stocks would be cheaper to buy (but then I'd also have less money... so eh... whatever).

My suggestion, in this market, is to stay put... if you care about long term growth. If you care greatly about short term... getting out of it now might be smart.

One other point on this... since the market forces are always pointing us higher, every year that line goes up as well. If we are flat for the next 27 months, then what we're sitting at today would then be back on that average.

The best way to look at this, as a long term investor... is to take 19.6% off of your total stock investments and look at your account as being worth that much... instead of what it's actually worth today. Then it won't sting if in the short term we drop just a little. Every year your account (in stocks) should go up 7.2% inflation adjusted (at least what you have invested in the S&P500), but the rub is that we don't follow it that linearly year by year... you'd have to span out to a 30 year horizon to recognize that consistency.

Cheers.

As a numbers guy, I assume you mean that for example if your stock investment is 50% of your portfolio, then you should haircut your stock portion by 9.8%. Agree?

 

[SecondCor521]

Curious: Why is this question important?

Your question assumes that I only post about important things!

Just curious what others thought. My personal opinion is that the recent, uh, adjustment is not enough to trigger a reset, and that if we were to see consistent movement upward from here it would be generally viewed as a continuation of the ~9 year bull market.

There is a small chance that I might shift my asset allocation by a few percentage points in one direction depending on what I ultimately decide my answer to this question is.

 

[W2R]

Maybe we went from an extreme bull market, wildly soaring upwards by leaps and bounds, to a more normal, humdrum market.

IMO we have yet to see the new bear market. Who knows when that will be; could be just around the corner, or a few years down the road.

The criterion I use to identify a bear market, is the degree of despair seen in posts by known, established forum members right here on the ER Forum. When a substantial number of us start talking about selling everything, or about going back to w*rk, and others respond to those posts with handholding and trying stay hopeful, then we're getting there.

 

[OldShooter]

... The criterion I use to identify a bear market, is the degree of despair seen in posts by known, established forum members right here on the ER Forum. When a substantial number of us start talking about selling everything, or about going back to w*rk, and others respond to those posts with handholding and trying stay hopeful, then we're getting there.

Behavioral Economics. Richard Thaler would love it!

 

[Chuckanut]

I don't worry about it much.

Re-blance and move on. And keep a reserve in case we run into a real Bear market like 73-74 or 2000. A relentless Bear Market is nothing to fool with. How to predict it? If I knew the answer to that I would invite you all to sail with me on my 200 foot yacht.

 

[EvrClrx311]

As a numbers guy, I assume you mean that for example if your stock investment is 50% of your portfolio, then you should haircut your stock portion by 9.8%. Agree?

Yep. So this is how I adjust my thinking, in order to not freak out on the shorter term year by year movement. I view my account as a potential value, not it's actual number value, at any given time. And the potential I see as a representation of that long term average. So if the market is high, I actually reframe my sense of what my retirement accounts value is to represent a lower number. And if the market tanks, then I do the opposite.

Call it normalizing... I've found this really helps me sleep better at night. Particularly when you recognize that this long term "middle" is a better representation of what you have in the long term, more so than what you actually have in your account at any given time. Getting comfy with higher prices in equities can be dangerous if your emotions get wrapped up in them, and your planning. You know?

So right now my 401k balance (100% stocks) is $404,000, but I tend to see it as really being in the $330,000 range for sanity, because I know it needs to come down a bit to reach this average. I just can't say when or how it will... or if long term growth/inflation will keep it here till a couple years from now when it's supposed to be there.

This also allows me to naturally ratchet up savings when the market is low and to get safer when it's high I think this kind of thinking doesn't tend to work for most outside this forum... but I'd imagine the kinds of minds here are similar to my own and have come up with their own mechanisms for doing the same thing

 

[Dtail]

Interesting, thanks.

 

[W2R]

Behavioral Economics. Richard Thaler would love it!

Hey, it works for me! Honestly I don't remember any of us here wondering if we were in a bear market, back in 11/2008 - 3/2009, for example. It was pretty apparent to most of our forum members (many of whom are unusually intelligent and savvy investors).

To me, it isn't worth much more thought than that. I'm a buy-and-holder. I might buy low in a severe bear market if I had a little extra cash, but rebalancing according to my written plan has that result for me. No way can I predict the exact bottom.

Also, when I am concerned about the market, I find myself spending considerably less without making any effort to do so. Waiting out a bear market (should one occur) will be do-able, for me.

 

[SecondCor521]

The criterion I use to identify a bear market, is the degree of despair seen in posts by known, established forum members right here on the ER Forum. When a substantial number of us start talking about selling everything, or about going back to w*rk, and others respond to those posts with handholding and trying stay hopeful, then we're getting there.

As good of an answer as any. Thanks, W2R!

 

[marko]

Yep. So this is how I adjust my thinking, in order to not freak out on the shorter term year by year movement. I view my account as a potential value, not it's actual number value, at any given time. And the potential I see as a representation of that long term average. So if the market is high, I actually reframe my sense of what my retirement accounts value is to represent a lower number. And if the market tanks, then I do the opposite.

Call it normalizing... I've found this really helps me sleep better at night. Particularly when you recognize that this long term "middle" is a better representation of what you have in the long term, more so than what you actually have in your account at any given time. Getting comfy with higher prices in equities can be dangerous if your emotions get wrapped up in them, and your planning. You know?

I'm as far from being a numbers guy as you can get but this is exactly how I view it!!
I think of it more as a "tide" that gets held back temporarily and then eventually continues on upward.

 

[LOL!]

In my opinion, everything reset in February 2016.

 

[Midpack]

Since you're asking board opinions... Bull? Bear? Who cares? Either way is short-term.

+1. There are definitions for bull markets, bear, correction, etc. - we’ll see all of them and “opinions” are just that, opinions. If the market provides positive real returns in the next 40 years or so, I really don’t care what it does along the way, or what labels may/not apply.

 

[Red Badger]

In my opinion, everything reset in February 2016.

I think it was 2017.....

I believe that we had a post-Great Recession bull market until early 2017. IMHO, the bull market since early 2017 is based on several fiscal/economic changes undertaken on/after 1-20-2017.

These are just my facts. Others are certainly (and respectfully) welcome to their own set of facts.

 

[TimeMeasure]

So this is how I adjust my thinking.... I view my account as a potential value, not it's actual number value, at any given time. And the potential I see as a representation of that long term average. So if the market is high, I actually reframe my sense of what my retirement accounts value is to represent a lower number. And if the market tanks, then I do the opposite.

Thanks for posting this - this is a nicely put way of thinking about asset valuation. This seems very useful if it's used for keeping a long-term perspective, and for avoiding the psychological drag (positive or negative) of short-term perceived market momentum.

 

[SecondCor521]

I think it was 2017.....

I think LOL! is referring to the approximately 10% pullback in early 2016. I'd like to think LOL! is correct and we are in the second year of the current bull, not the 9th.

I appreciate all the thoughts.

 

[HI Bill]

As a geologist, I don't believe in regular cycles. Uniformitarianism means that the present is the key to the past; all I can say with certainty is that civilizations rise and fall, and so do the markets. To me, there are too many variables for anyone, or any computer to predict with any certainty; especially, when fear and greed, rather than economics, steer the markets. When a single news headline can affect an entire industry's equities, rather than a single company's, or even the entire market, we have disconnected a share's value from any real metric.

 

[Cut-Throat]

I watch the Financial News at the Health Club in the morning. There are these 3 guys that dress up in Suits and Ties and talk about the Stock Market like they know something. One of them is Cramer that is always Screaming. They talk like they are commenting on the Kentucky Derby... In the Grand Scheme of things Cramer doesn't beat the S&P 500 Index.....


I watch for amusement only.... I am invested in the Vanguard Target Retirement Index Fund. (No plans of Doing anything different).

 

[OldShooter]

As a geologist, I don't believe in regular cycles. Uniformitarianism means that the present is the key to the past; all I can say with certainty is that civilizations rise and fall, and so do the markets. To me, there are too many variables for anyone, or any computer to predict with any certainty; especially, when fear and greed, rather than economics, steer the markets. When a single news headline can affect an entire industry's equities, rather than a single company's, or even the entire market, we have disconnected a share's value from any real metric.

"The only function of economic forecasting is to make astrology look respectable." -- John Kenneth Galbraith

 

[bobandsherry]

Currently, on the long term horizon, we are sitting about 19.6% higher than the market 'ought' to be (for what it's worth, it's normal to be above or below it by even 30%, point is we straddle this line on the long .

Not sure how you know what the market "ought" to be. The whole tax reform think kinda changes the bar that one measures against.