Bull/Bear Market Cycles Post World War II
Bull markets don’t die of old age
Because of the length and the age of this current bull market, many are saying that the bull market may be over soon. But bull markets don’t die of old age. Bull markets end because of an economic recession or a severe financial crisis. Neither is present. For one, the Conference Board’s Leading Economic Index are pointing to continued solid growth in the US economy. The June figure increased by half percent, beating expectations and marking the eight straight month of gains for the index. Second, the excesses experienced in previous bull market tops such as excess leverage, excess valuations and irrational exuberance on the part of investors are absent. Opportunity of a generation
For us in Philequity, the current bull market was born when the S&P500 index hit an intraday bottom of 666 on March 6, 2009. This is the level and date that we refer to in our book Opportunity of a Lifetime and in many articles we have written. In fact, this is what we wrote in this column almost 10 years ago.
“It is not surprising that only a few would dare to call a bottom this time around because the bulls have already given up and most of the bears have turned early bulls and were wrong… Nevertheless, we think the odds have dramatically improved that an important bottom is at hand, (666, March 23, 2009).”
“It is such a coincidence that the S&P 500 index bottomed at 666 on 3-6-9. While these numbers have important meanings when viewed in the concept of numerology, for us, they are significant because they quite possibly marked the ultimate bottom in stocks – the opportunity of a generation. (666 on 3-6-9, April 13, 2009).”
The start of the bull market in the US was the cue for global stock markets, including that of the Philippines, to start their own bull markets as well. Since then the PSE index is up more than three-fold. Staying the course
We are now in the midst of the longest bull market in history. However, it is hard to predict when this bull market will eventually end. Thus, identifying the start of the bull market and formulating a strategy to stay the course are crucial for investors. We find this very important, that is why we devoted a whole chapter in our book regarding this topic. We quote from the book and from our article:
“We were frequently asked if we saw any corrections coming as people wanted to time these short-term drops in the market. Our response to these questions was always the same – corrections would always be present in any bull market, but the more important thing was that the long-term trajectory was upward. Therefore, it would be more prudent for people to hold on to their positions rather than trade in and out of them (Chapter 3- Staying the course, p. 65 of Opportunity of a Lifetime).”
“Corrections are part and parcel of bull markets. But nobody knows exactly when corrections will come. Corrections can take many forms…However, what we know is that the general direction of the market is still up and after a correction the market will resume its upward trek. Selling in a bullish market and trying to time corrections may cause an investor to miss a big upward movement in this bull market (New high means higher, Sept. 20, 2010).” What’s next for Phl stocks?
While the US markets have made new highs, it’s been a like a roller coaster ride for Philippine stocks. There have been deep corrections followed by sharp rallies. Some corrections were in excess of 20 percent like the pullback caused by the taper tantrum of 2013, the China slowdown scare of 2015.
Early this year, the PSE index reached an all-time intraday high of 9,078.37. But concerns about rising oil prices, inflation, a depreciating peso and a possible trade war, have caused the markets to decline by as much as 23.7 percent to 6,923.67 in June. Since then, the PSEi has rallied 12 percent and we may have seen an intermediate bottom in Philippine stocks. However, risks still remain and trading continue to be volatile. Philequity investor briefing on Saturday, Sept. 1
Emerging markets such as the Philippines move differently from developed market like the US. Each EM country face differing economic situations and issues. Hence, EM stock price movements are more volatile and are marked by sharper corrections. We will present all these nuances and how investors should navigate this perilous market during our investor briefing on Saturday, Sept. 1, 9:30 a.m. at the Meralco Theater. Philequity investors and readers of this corner who want to attend are requested to register early for the event as seats are being filled-up quickly.
Philequity Management is the fund manager of the leading mutual funds in the Philippines. Visit www.philequity.net to learn more about Philequity’s managed funds or to view previous articles. For inquiries or to send feedback, please call (02) 689-8080 or email ask@philequity.net.