SECULAR BULL AND BEAR MARKETS

  SECULAR BULL AND BEAR MARKETS
Bull and bear markets occur not only over short time frames but also
over long time frames. Refer to Table 1-8, which depicts two longterm
(secular) bull and two long-term bear markets for the period
1929–1999. This table was prepared by Dennis Tilley, Director of
Research, Merriman Capital Management. For the entire 71-year time
frame, the S&P 500 Index had an average annual return of 10.6 percent.
But it was not all smooth sailing over that period. The secular
bull markets from 1942 to 1965 and 1982 to 1999 produced average
annual gains of 15.7 percent and 18.5 percent, respectively. But the
two secular bear markets from 1929 to 1941 and 1966 to 1981 pro duced much lower annual average returns of –2.4 percent and 6 percent,
respectively. So as you can see, there can be long periods of time
when the market is flat or down.
Even in secular bull markets there are cyclical bear markets,
where prices rally and falter, rally and falter, but overall no
progress or negative progress is made. There are numerous opportunities
to make money, assuming you have the ability and willingness
to follow the markets and use a tried-and-true markettiming
approach that works.
The question to ponder now is whether we have entered
another secular bear market that could last 12 to 17 years. No one
knows the answer. That is why it is important to have a viable
investing approach. Buying and holding in a secular bear market is
not a money-making approach. And inflation always eats away at
whatever returns you are able to obtain. After inflation, the two
previous secular bear markets had negative returns.
Michael Kahn, writing in the December 16, 2002, issue of
Barron’s, says: “Tired of waiting for a clear trend in the stock market?
Get used to it. If an emerging pattern continues, the major
indexes could be in for 15 years of bouncing around. That’s right 15
years. Since World War II, the market has seen an 18-year rally, followed
by an 18-year flat period, followed by another 18-year
rally—the one ending in 2000. That means we could be about three
years into the next 18-year flat spell.”4