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.