Tag Archives: Bull Market

What if I told you this bull was born in 2011?

Did everyone just re-write history by forgetting we had a 20% correction (i.e. end of a bull market) in the fall of 2011 on a intra-day basis? Granted, this was on the heels of a downgrade on US debt and mainly a politically driven drop… but it did happen, didn’t it? Maybe I was just drunk and that whole time frame is a distorted memory.

Food for thought for those of you who think this bull market is getting long in the tooth. If you decided not to forget about 2011, we’re really only approaching this run’s 3rd birthday. Considering this, if we go back to the “start” of this “new” bull market on October 3rd, 2011 (closing low during that period), we would say that the base for this latest run began at 1099.23 on the S&P 500. Let’s take a look at some data from S&P on the average annual returns of all Post-WWII bull markets to begin our new comparison:

Now, lets compare those average annual returns to what we have witnessed since our “new” 2011 bull market:

Using the historical averages of modern bull markets, we should expect the S&P to be somewhere around 1800 on October 3rd of this year. That would mean at Friday’s close we were actually overvalued by slightly more than 2%. Given today’s early gains we are actually even more overvalued. This would seem to support election year seasonality in the fact that we would need a sell-off or sideways trading for a decent period of time in order for the market to become overly attractive again. 

I would expect volatility to increase from here regardless of geopolitical events. We need a new catalyst to really send this thing higher when considering valuations, earnings growth, and potential for margin compression as wages rise. Long-term I remain very bullish on equities, but I wouldn’t be surprised to see 10-year yields fall back to 2.5% and equities suffer in the short-term.




Is “smart money” all that different from retail investors?

In recent weeks there have been many quotes from institutions hinting that “the top is in” and that the market was overvalued. Many in the media took this to mean that the time to sell was now as retail investors were beginning to get back into the market, which historically has meant the market is closer to the end of a run rather than the beginning of a new one. Everyone wants to listen to the all-knowing, all-seeing “smart money” (even though the “smarties” have been getting their ass kicked this year).

So, just how different from retail investors are the institutions in recent times? Well, according to the ICI data on Money Market assets ….not very different at all. In fact, if institutions really believe the market is overvalued, it appears retail began collecting cash at a faster rate than they did. 

Source: http://www.ici.org/research/stats/mmf

Now, I’m not going to go out on a limb and say retail investors are a great indicator for the markets, but it is interesting to see how similar the money market activity for these two classes has been as of late. It is my opinion that since the latest recession, retail investors have been much more cautious with their money and aren’t willing to just throw themselves into the ring and go on with their lives. This data tends to agree with that opinion for now. If this bull market continues, will we eventually see a divergence between the two investors? 

Have a great Monday!