Market Advance Below Average In Return And Duration

Investors and market pundits have been expressing cautiousness of late about the near uninterrupted advance of the U.S. equity market. This climb higher has been in place since the end of the financial crisis in 2009. I discussed this strong move higher in a post at the beginning of November that included the below chart.

From The Blog of HORAN Capital Advisors

In looking at the chart it seems rational to believe the advance is getting long in the tooth as they say. However, in a recent strategy article written by Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, she notes how this advance is really not that long in duration relative to prior bull markets. Additionally, her article notes from a return perspective, on a rolling ten year basis, the S&P 500 index return is just below average. And, the market return, on the upside or on the downside, generally overshoots the average as can be seen in the below chart.

From The Blog of HORAN Capital Advisors

In an effort to put this in perspective her article included the below chart comparing the length and magnitude of prior S&P 500 bull markets and this one has been just an average one.

From The Blog of HORAN Capital Advisors

Another chart by the Chart of the Day charting services notes prior bull market advances and duration for the Dow Jones Industrial Average. Included with their recent chart is the following commentary.

"The Dow just made another all-time record high. To provide some further perspective to the current Dow rally, all major market rallies of the last 113 years are plotted on today's chart. Each dot represents a major stock market rally as measured by the Dow with the majority of rallies referred to by a label which states the year in which the rally began. For today's chart, a rally is being defined as an advance that follows a 30% decline (i.e. a major bear market). As today's chart illustrates, the Dow has begun a major rally 13 times over the past 113 years which equates to an average of one rally every 8.7 years. It is also interesting to note that the duration and magnitude of each rally correlated fairly well with the linear regression line (gray upward sloping line). As it stands right now, the current Dow rally that began in March 2009 (blue dot labeled you are here) would be classified as well below average in both duration and magnitude. However, the magnitude of the current post-financial crisis rally has now reached median status -- its magnitude is greater than six and less than six Dow rallies since 1900."

From The Blog of HORAN Capital Advisors

Source: Chart of the Day

 

The Schwab article contains several interesting tables noting criteria that historically have been present that would signify a market top. Many of these criteria are not present today. She also notes a 5-10% correction would not be out of the norm and in fact writes,

"My bottom line is that I continue to hope for a pullback here in the near-term to alleviate some of the frothiness that's crept in and keep the bull market going. But I continue to fear a melt-up. Why "fear?" As good as they feel while they're happening, they don't end well."