It’s everyone’s worst fear — the bull market is over, and its best gains are behind us.
Now there is only the massive race to the bottom, where stocks are losing 20%, 40% or maybe even 75%. No one wants to be left holding the bag at the end of the rally.
But there’s also a danger in getting out too soon.
The truth is, no one knows when the bull market will end.
But I know that history says it’s not over yet.
The S&P 500 has rallied 6% over the last eight months. It’s up a more respectful 17% over the last 12 months.
When you look at the last year of previous bull markets, you’ll see we haven’t seen the usual pop. At the end of the 2007 bull market, the S&P 500 Index gained 25% over the final 12-month period.
The last push higher for the bull market, which ended in 2001, was a 20% rally.
Once we go back a little further, the dying of bull markets shows a trend to expect an even more euphoric move at the end of the rally.
For instance, the 1987 bull market shot up 35% in the last 12 months before ending on Black Monday.
And in 1961, there was a 30% rally to cap off its bull market.
A 34% rally came at the end of a bull market in 1946.
You get the picture.
Bull markets usually go out with a bang, not a whimper. And right now, we are on the cusp of entering this “bang” period, also known as the euphoric stage of the bull market. You don’t want to miss out on this rally…
All the Pieces Still in Place
Last Wednesday, the stock market set the record for the longest bull market on record, reaching 3,453 days.
It is tracked from the bottom reached on March 9, 2009 — only a fall of 20% or more ends the bull market.
The correction earlier this year that sent traders into a flutter of panic was just 10%. That should help give you some perspective of how large a 20% move lower will be.
Now that the market is back at all-time highs and is a record-setting bull market, many wonder what’s next?
How much higher can stocks go?
Well, we’re still not at the end, despite what the doomsayers like to predict. Stocks have much higher to go.
The fundamental factors that are helping to drive stocks higher, such as strong corporate earnings and healthy consumers, are still in place.
Tax cuts for both consumers and corporations are helping to lift the stock market despite the major worries— trade wars, rising rates and weaker global economies — that are taking place.
Those worries are being trumped (sorry for the pun) by a healthy U.S. economy.
And, I have touched on this issue before, but trade wars, or tariffs in general, have a short-term positive effect for the economy.
The Final Run Is the Strongest
This short-term benefit of tariffs is really the key for the market rally to still have room to run.
Too often investors focus only on the end outcome of trade wars and rising rates — which is usually a recession — and try to hold stocks lower.
But they are overlooking what’s going to happen in the near term to stocks. Right now, the market is poised to enjoy the next two years as being the strongest of this nine-year bull market.
In the short-term, protective policies, such as tariffs, help create more jobs with rising wages. It all looks great!
But, after a few years, the effects start to catch up to us. Higher wages increase consumer prices, triggering rising rates, which leads to an overall slowdown for our economy.
This is the making for our next recession.
The Bull Market Isn’t Over Yet
However, the last few years of the market leading up to this recession are the euphoric stage.
This is where you will see the strongest growth in the market of more than 20% a year, and all of a sudden, it’s not about when the bull market will end, but how it is unstoppable.
That’s your sign we have hit the euphoric stage.
These gains are not something you want to miss out on.
Chad Shoop, CMT
Editor, Automatic Profits Alert