Click to enlarge
Chart

 

We have not looked at this chart in a few quarters.

Here’s Merrill:

Secular bull market roadmap: The S&P 500 broke out to new all-time highs in April and has held this breakout. The retest of the prior highs in June confirmed the breakout (prior resistance acted as support) and this is a secular bull market pattern. Holding 1575-1530 keeps this breakout intact.

History of big range breakouts:  Upside breakouts from big trading ranges are bullish long-term even if the US equity market pulls back and spends time retesting the upper portion of the secular trading range.

The key question is, are we now 5 years into a 1982 – 2000 type of a secular bull market, or is this merely a post 19734-74 bounce?

 

 

Source:
Stephen Suttmeier, MacNeil Curry, Jue Xiong
Monthly chart portfolio of global markets
Bank of America Merrill Lynch, October 1, 2013

Category: Cycles

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.

20 Responses to “Secular Bull Market Roadmap”

  1. digistar says:

    Most likely your “Secular Bull Market” is the result of the FED’s constant QE. Not saying the market isn’t going up. Just that it’s silly to act like this is purely a business-as-usual market move.

    • Angryman1 says:

      There is no QE. If isn’t multiplying, there is no effect. Private sector recovery is the key. Your missing that.

      Inflation adjusted, the S&P is still below the 2000 top.

      • rd says:

        The Fed has lowered the short-term and long-term interest rates significantly below normal equilibrium levels compared to inflation. This has greatly reduced the competition for investment dolalrs.

        Until the 1950s, stocks routinely had higher dividend yields than bond interest rates. Then it switched and stocks routinely yielded much less. Now we having stocks yielding about the same as 10-yr T-bonds for the first time in many decades, so we are moving back to the older pricing approach, albeit at much lower yields.

      • flakester says:

        Indeed on the S&P with inflation adjustments being far from the 2000 highs.

        Charts without inflation adjustments compare apples to oranges, and can easily lead to false and misleading conclusions, like buying in 1974 and watching one’s purchasing power decline.

  2. MayorQuimby says:

    Well – we might be headed above 2K on S&P but if so it will mean 3rd-world style inflation and wealth disparity. I doubt this however – when things look most inevitably bullish it is usually time to pullback. But how does one pullback with such easy money/desperation from the Fed and gvmt?

    I suspect things are going to get a lot more difficult for the powers that be – this has been waaaaaaaay too easy for Ben and his dovish flock. Maybe it’s $5 gas this summer or $120 oil. Maybe mass increase in tuition defaults above 25%. Maybe it’s a post-holiday massive loss of employment.

    Until that happens though it just makes sense to hold longs. I expect tapering to keep being delayed however.

    Last thought – a HUGE reason for the rally is low interest rates (makes equity divvies relatively attractive). So an argument could be made that further inflation (ie success by the Fed) will equate to higher rates and ironically enough – harm stocks. Ahhhhhh….who the hell knows.

  3. supercorm says:

    What about a false signal ?! What about a secular bear market ?!
    .
    Nothing changed since 2008. We simply transferred debt from individuals (bad credit) to the government (good credit). Net impact, lower rates, and another move up on complacency the government (especially the Fed) will intervene and prevent healthy corrections (which are, unfortunately, necessary).
    .
    We never started a secular bull market with a P/E multiple above 16. Especially with artificially low rates, in a environment where the government borrowed so much from future GDP …
    .
    All in all, Europe still has its problems, the BoJ still print more than the already high deficit (10%), China is highly relying on infrastructure investments to avoid a economy collapse, and US bounce not on solid ground as investors, not knowing what to do with their money while rates are at zero, are buying home cash ahead of first time home buyers who are still unable to build equity. No wonder why the income disparity between the 1% and the 99% are at levels not seen since 1929 …
    .
    I was always bull (for the wrong reasons), but I think there is a limit to how much you can grow margins when you just cant grow your top line because consumers don’t have wage growth to consume because companies are cutting costs … a pretty bad catch 22 combination here, and we’re seeing the end of this game.
    .
    Complacency is reflected in the blue sky index. I think upside is limited simply on earnings growth vs. expectations, while systematic risks in either China, Japan, Europe and US remains.

    • P/E back in 2009 was appreciably lower than 16 . . .

      • supercorm says:

        True, point taken Barry …

        … but in other words, I think secular bull market started from low levels (such as 2009) with prices rising with solid earning growth together. So a rally that was selfsufficient … this one feels like the rally is QE fueled, hence unsustainable.

        This brings me back to your chart 2 days ago I think, the start of a secular bear market (!), in the range where bear starts and bull ends.

        I would add that a +5% deficit on a $3.5 trillion budget is somewhat very stimulative, not the austherity some suggest we’re in, especially when tax rates are at/near the lowest ever despite the end of the ‘temporary’ tax cut earlier this year. With the upcoming and inevitable payback time since I don’t expect government revenues to rise at this year’s pace, adding problems growing the top line, I still fear the worse.

        … but yes, nice chart and point taken re: 2009′s P/E at 9x.

        Have a safe trip on the train.

      • TKREF says:

        P/E was low in ’09 but appreciably higher than at end of prior secular bears (maybe because rates were higher at those times, although Fed Model is poorly correlated historically). In any case, the question is where we are now — and that’s where the secular-bull hypothesis really breaks down.

        In the prior instances where the market made fresh new highs, valuations remained near secular lows (even though prices had risen enough to be making the new highs). This time, valuations are nowhere near low. To the contrary, valuations are already at nosebleed levels (using historically proven measures like CAPE, price-sales, or Value Line’s MAP, as opposed to historically unreliable measures like forward PE or 1-yr trailing PE). In fact, valuations are higher than at the prior secular bull peaks, with the sole exception of ’99-’00 — the most overvalued peak in market history.

        Being a secular-bull proponent today is more like being David Lereah in ’04-’05 than Warren Buffet in ’08-’09.

  4. Concerned Neighbour says:

    Look at those people tripping over themselves to buy stocks at all-time highs. You’ve got to love the Fed, they are quite accomplished at inflating – and ignoring – new bubbles. Something tells me Aunt Yellen is a growth investor who probably has 100% of her retirement savings in the likes of AMZN. Coming soon to a manipulated market near you: sky-high P/E’s for one and all stocks.

  5. wrongtrade says:

    These comments- they smack of being upset about what has transpired over the last few years. Of staying mad at being wrong. Barry says “do you want to be right or do you want to make money.” I have been neither right nor made money. Damn frustrating, but I am not jumping in now. Been there, done that. Thank goodness I work my a** off and can make money as a 1%er. It is the ONLY way I have any. I just try to hold on to it after taxes.

    • supercorm says:

      The other way is also to stop spending like there is no tomorrow (and “slowly” jumping in, or dipping your toe, once a month …). I’ve seen too many 1%er spending like they were the 0.1%er, a Lamborghini to say loud and clear they made more money then they deserved, or spent more than $15k per month on a rent that were basically sunk cost, only to make nice parties. You only live once, yolo as they say, but nothing like finding life equilibrium … and portfolio diversification that doesn’t mean only in the stock market. But hear you, I’m lot more cash than stock right now, and won’t mind if we go either way … I just don’t think its up though, blue sky index and margin debt level and strong expectations (secular bull consensus) tells me the downside could be painfull.

  6. I agree with wrongtrade. There are three crowds: those who made money, those who sat out, and those who are losing money. I’m mostly sitting out of this one but continue to look for fresh ideas. A lot of work for a lot of nothing.

  7. catman says:

    Fantastic – Secular bear and bull articles in the same week. I’ve been riding the wave, but let me observe that I have been able to sell one of my zombie stocks this week at a small profit. I’m talking a real long time albatross that would have been written off long ago in a taxable account, but instead has been frozen on screen for years mouthing the word moron.

  8. Pantmaker says:

    Wrongtrade- I think you are right not to jump in but I think your frustration is misplaced. Consider for a moment that what you are reading in the comments isn’t a bunch of upset folks, but rather one of Barry’s “do you want to be right or do you want to make money” moments. You might not actually be late to the party but right on time to the party next door.

  9. 4whatitsworth says:

    I don’t think it is very likely to have bear market for any length of time with M2 growing at such a rate and interest rates so low. http://research.stlouisfed.org/fred2/series/M2/

  10. rd says:

    I still think that we are in a bounce in an overall secular bear market, mainly because valuations are still historically high. Current valuation levels only look low in contrast to the very unusual 2000 valuation peak:

    http://advisorperspectives.com/dshort/charts/valuation/valuation-overlay.html?valuation-indicators-arithmetic.gif

    I don’t see much more room for multiple expansion without it being very irrational exuberance, so we are still relying 100% on increasing earnings for sustainable advances in the stock market. Since earnings margins are at peak levels, it is unlikely that continued cost-cutting will lead to large earnings increases. That leaves either increasing revenues or continued stock buybacks with cash as the source for increasing earnings. So we basically need to see US and world GDP growth to accelerate to see a strong continued bull run.

    I don’t see the driver yet to tank stocks but I don’t see a major economic force out there to keep pushing the market up very much over the next year.Even at these stock market valuations, I think that stocks will outperform bonds slightly over the next 10 years because of the very low bond yields.

    So I stay in a neutral stance with about a 60/40 equity/bond allocation. However, the stock market will likely fluctuate wildly during that time, so I think there is real potential for an extra 1% or more in average annual returns from rebalancing over that 10 year period. A tanking stock market with valuation metrics significantly below the long-term average would push me towards a higher equity allocation.

  11. czyz99 says:

    About a 9 on the old negativity scale.

  12. taxman100 says:

    I have been waiting for this breakout since 2001.
    The economy is still depressed and inflation is going nowhere so all the worry about the Fed and QE are premature. As long as that money is sitting in bank reserves and the money velocity stays low there will not be too many dollars chasing goods. And there is still excess capacity both in labor and natural resources. Add to that mix a slowly improving economy, high after tax profitability and productivity increases, with low costs of capital, and you have a recipe for shock market gains. Unless the Republicans succeed in tanking the economy.

  13. taxman100 says:

    Well maybe not shock market gains. I will settle for stock market gains. :)