This Bull Has Legs – The Bullish Case

​If you have read my posts or received our emails, you know that I am not always the most bullish person on the markets.  I know, you are probably saying “Nah, never noticed” with extreme sarcasm.
 
When I look at the markets, I see a magnificent way to achieve long-term goals, but I also see a lot of issues that we need to work through not the least of which involve bulging Federal Deficits, declining GDP growth, an aging population and more.  I could go on and on.
 
However, they say, “the market climbs a wall of worry” and I think I can safely say that to be true.  For whatever issues I see in the markets, they have generally continued higher and have confounded the most skeptical of us.

​So, in an attempt to present an unbiased look at the markets, I would like to present the bull case for the next decade or so.
 
This all starts with a very long-term view of the markets. 

What we have above is a 100-year chart of the S&P 500 index.
 
What you will notice is there are periods where the markets essentially move sideways (in red).  We call these secular bear markets.  These periods are usually volatile, and the market makes little or no headway over a 5 to 25-year time frame.
 
We also have periods where the markets advance for years on end.  We call these secular bull markets.  The last full secular bull phase was 1980 to 2000 or twenty years.
 
Within each secular bull and/or bear market cycle are a number of cyclical bull and bear markets or cycles within cycles. 
 
The cyclical bear markets tend to be much more volatile and the corrections deeper within the secular bear phases than they do in the secular bull phases.  The bull cycles in secular bear markets typically are advances back to the top of a range.  In the secular bull cycle, they are advances to new highs.
 
Notice how the markets move up and pull back in these secular bull markets but the trend clearly remains up.   In fact, the cyclical bear markets look insignificant when you look at a 100-year chart.  If you looked at the 1980 – 2000 secular bull phase, you would hardly know that that period included the Crash of October 1987, the mini crash in October 1989, the 1990 recession and 1998 Russian Financial Crisis just to name a few.

Now look at the last red box on this chart.  Notice how we appeared to exit the latest secular bear market in 2013.    That is very constructive for stocks!
 
That is not to say that a recession will not occur in 2020 but if we are indeed in a secular bull phase, that market correction could be much less severe and/or much shorter in duration.
 
Now the caution, this all looks very bullish, but what happens if we back out the effect of ten years of Central Bank intervention through money printing and asset purchases.  It is impossible to quantify this effect, but it is possible this bullish 100-year chart has been distorted by the aforementioned intervention.
 
However, it is also possible this is just another example of the markets climbing that wall of worry and an excellent chance for investors to capture higher returns for many years to come.
 
Let us know what you think?