It’s Been a Long and Disappointing Bull Market

disappointing-bull-market

We’re enjoying the third-longest bull market in history … but many investors are disappointed. Despite its length, the returns of the current bull market have been a little disappointing to many investors.

Below is the history of the Dow Jones Industrial Average since 1900. Secular bull markets, meaning ones that last at least five years, are highlighted in blue. The chart shows that our current bull market is the third most powerful bull market in history, measured both in terms of its average annual gain and its length of time.

We’re enjoying the third-longest bull market in history … but the returns of the current bull market have been a little disappointing to many investors.

Based on the severity of the bear market that ended in 2009, many analysts expected bigger gains than what we’ve seen. Analysts tend to believe that markets loosely follow Newton’s laws of motion. Newton’s third law says: “When one body exerts a force on a second body, the second body simultaneously exerts a force equal in magnitude and opposite in direction on the first body.”

Applied to the markets, this means a bull market tends to be proportional to the bear market that came before it. Technical analysts often apply this principle to individual stocks when they analyze charts. Price moves identified with pattern analysis are expected to be symmetrical. A $10 trading range, for example, is expected to set up a price move of $10.

The steep losses of 2008 and 2009 should have been followed by large gains. But that didn’t happen.

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The indicator at the bottom of the chart shows the average annual gain for the previous 10 years. The horizontal dashed line shows the largest average gain in the current bull market. Previous bull markets included years of gains that were better than investors earned in this current bull market.

Fortunately, the bull market isn’t over yet. It’s possible stock prices will jump with a final surge to end the bull market. That could boost the average annual return to what it should have been, even as it sets up the next bear market.

Regards,

Michael Carr, CMT
Editor, Peak Velocity Trader

  • A few years ago, Robert Prechter (Elliott Wave Intl.) had a GREAT article explaining why the markets are NOT driven by physics. I could not pull up part 1, but part 2 is on line at his Socionomics website.

    http://www.socionomics.net/2004/06/the-stock-market-is-not-physics-part-ii/

    It’s a long article, but here’s a fun Quote:

    A Stone’s Throw …
    This discussion about the natural tendency of people to apply physics to finance explains why successful traders are so rare and why they are so immensely rewarded for their skills. There is no such thing as a “born trader” because people are born — or learn very early — to respect the laws of physics. This respect is so strong that they apply these laws even in inappropriate situations. Most people who follow the market closely act as if the market is a physical force aimed at their heads. Buying during rallies and selling during declines is akin to ducking when a rock is hurtling toward you. Successful traders learn to do something that almost no one else can do. They sell near the emotional extreme of a rally and buy near the emotional extreme of a decline. The mental discipline that a successful trader shows in buying low and selling high is akin to that of a person who sees a rock thrown at his head and refuses to duck. He thinks, I’m betting that the rock will veer away at the last moment, of its own accord. In this endeavor, he must ignore the laws of physics to which his mind naturally defaults. In the physical world, this would be insane behavior; in finance, it makes him rich. Unfortunately, sometimes the rock does not veer. It hits the trader in the head. All he has to rely upon is percentages. He knows from long study that most of the time, the rock coming at him will veer away, but he also must take the consequences when it doesn’t. The emotional fortitude required to stand in the way of a hurtling stone when you might get hurt is immense, and few people possess it. It is, of course, a great paradox that people who can’t perform this feat get hurt over and over in financial markets and endure a serious stoning, sometimes to death. Many great truths about life are paradoxical, and so is this one.

  • I tried to delete this as I was able to edit and add to my Comment below, but could not delete it. Sorry about that. But my addition is a the end of the Comment below.