Interesting historical comparison, from S&P via Barrons (long excerpt):

The Bull’s Fourth Year
Here’s how sectors within the S&P 500
performed in the fourth year of an
ascending stock market, since 1960.
Sector Average %
Change
Consumer Discretionary 22
Consumer Staples 26
Energy 6
Financial 22
Health Care 31
Industrials 19
Information Technology 28
Materials 14
Telecommunications 9
Utilities 4
 
Source: Standard & Poor’s

"Bull markets — defined by S&P as periods with a 20% or more
advance from a prior bear-market low — have lasted more than four and
a half years on average since 1942, according to Sam Stovall, chief
market strategist at S&P.

In those 11 bull-market scenarios, the first year was best, with
average returns of 38%. In the second year, returns were about 12% This
bull market has almost mirrored those returns. The third year is likely
to produce market returns of about 8%, double the historic average,
Stovall says.

The current bull market is somewhat parallel to the bull market that
began in October 1974, Stovall says. That run and this one came after a
roughly 48% market decline. And, in an eerily familiar scenario,
citizens faced an increasingly expensive and unpopular war, rising
energy prices and the threat of stagnating economic growth.

But there was soaring inflation and short-term rates were high and
rising. Still, in that fourth year, the S&P 500 eked out a 7%
return, according to S&P."

Investors, however, may do better if they look to specific sectors rather than buying the market as a whole.

"Stock outperformance in the fourth year of a bull market comes in defensive areas — consumer staples, health care and technology," Stovall says. "Whether times are good or bad, you still eat, smoke and drink — and if you overdo it, you go to the doctor."

Health-care stocks have been up 31% and information technology stocks increased 28%, on average, in the fourth year of a bull market, according to S&P.

Consumer staples, a sector which includes businesses less sensitive to economic cycles, such as the producers and retailers of food, beverages and personal products, have been up 26% in the fourth year.

Consumer discretionary stocks, more sensitive to economic cycles, also have produced decent returns in the fourth year — 22% on average — but with less frequency than consumer staples, according to S&P. The segment includes makers of cars, refrigerators and clothing as well as hotel and restaurant chains."

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Apologies for beating a dead horse, but — if you do not have an online subscription to the WSJ yet — Barron’s is included — considering the cost, you are missing alot of good stuff.

>

UPDATE October 7, 2005 2:13pm

I (obviously) don’t agree with Stovall’s assessment, but he is the chief
market strategist at S&P, and has some decent insight into his firm’s index.

Here’s a pair of charts looking at the two periods:

2000-05 SPX
click for larger chart

200005_spx_bigchart


1972-76 SPX


click for larger chart

197276_spxbigchart_1

Give Stovall his props — these two charts have more than a passing resemblance . . .

 

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Sources:
Will the Bull Catch a Second Wind?
DIMITRA DEFOTIS
Barron’s WEEKDAY TRADER, WEDNESDAY, OCTOBER 5, 2005 6:45 p.m.
http://online.barrons.com/article/SB112851407349960502.html   

Market Resistance Held, Will Support?
MICHAEL KAHN
Barron’s GETTING TECHNICAL  |   
WEDNESDAY, OCTOBER 5, 2005 4:05 p.m.
http://online.barrons.com/article/SB112851383230460495.html

Category: Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

5 Responses to “The Bull’s Fourth Year”

  1. john says:

    re. fourth year bull market, 1977-1978 and Stovel’s figures….

    Oct 1 1974 SPX = 63.54, CPI = 51.4
    Oct 1 1977 SPX = 96.53, CPI = 61.9
    Oct 1 1978 SPX = 102.54, CPI = 67.4

    Change from 1/1/77 to 1/1/78 of nominal SPX = +6.2%
    Change from Octo 77 to Oct 78 of CPI = 8.8%
    Real return of SPX from Oct 77 to Oct 78 = negative

    Am I missing something?

    I hate it when analysts use nominal SPX and forget about inflation….especially when talking about the 1970s.

  2. john jacobs says:

    Re:”The current bull market is somewhat parallel to the bull market that began in October 1974, Stovall says. That run and this one came after a roughly 48% market decline. And, in an eerily familiar scenario, citizens faced an increasingly expensive and unpopular war, rising energy prices and the threat of stagnating economic growth.”

    What war were we in in 1978?

  3. I don’t see this as parallel — altho there are similarities –

    We just suffered thru the mother of all bubbles popping, watched a bear run down until Oct 2002, and now have re-inflated about 40%.

    The post war rally ran from 1946-66 — by 74 Viet Nam was all but over, and the oil shock was well under way.

    Hey, maybe this is more like ’74 than I realized~!

  4. nate says:

    great blog posting-

    consumer staples may have a tough Q4 this time around, at least from an earnings perspective.

    the retail channel consolidated a ton since the 1970s (wal mart) and has more negotiating and bargaining power with consumer staple companies. a lot of competition comes from private label. there is competition within retailers too.

    commodity prices are high, which means margins are under pressure.

    consumers have big gas and heating bills, big mortgages, and the labor market is not great. customers may be very price sensitive on consumer staples. Aldi Foods may have a good Q4 on earnings.

    mergers or acquisitions might provide an increase in a stock or two.

  5. nate says:

    one more big difference between the two periods: direction of interest rate changes

    -December 1974 short term fed funds rate ~ 8.5% (nominal)
    -December 1976 short term fed funds rate ~ 4.7%

    In 2005 nominal interest rates have been increasing

    check me on the interest rates-

    http://www.federalreserve.gov/releases/H15/data/m/fedfund.txt