Bull markets are often declared when a major index gains 20% from its most recent low. However, using that criteria can be misleading. Bear market bounces from lows sometimes advance 20% only to reverse and go much lower. Others choose to wait for a new all-time high to confirm the bull market trend. The S&P 500 jumped to a new all-time high last Friday, surpassing the previous record level set in January 2022. The current rally started from a low of 3577.03 in October 2022. Since then the index has rallied 34%.
CNBC.com points out that “If history is any indication, stocks could be in for even bigger gains ahead, data from CFRA Research shows. The index has surged 156% on average over the course of the typical bull market going back to 1947, with the median gain coming in at 101%.”
The average Post-World War 2 bull market has lasted 1735 days, or almost five years. The median length has been 1512 days, or just over four years. The current bull run is 464 days old. If it ended today it would be the second shortest post-war bull market. If history is our guide we could be closer to the beginning of a new upward trend than the end.
Does confirmation of a new bull market, by achieving a new high, mean that it’s a good time to increase the stock allocation in your portfolio? To some that may seem counterintuitive. After all, aren’t we taught to “buy low and sell high”? According to historical trends, during the past 77 years, it has been a good time to add. You can see the numbers with your own eyes in the table above.
Risk management gets to be a very personal choice. Buying at new highs is not something everyone is comfortable doing. If stocks continue their upward trend, it will not likely be in a straight line. That never happens. There are always things to worry about, and obstacles in the way of upward momentum. The point of this newsletter is simply to point out that new highs have usually confirmed major new upward trends for the stock market.
All the best,
5T Wealth, LLC
Main (707) 224-1340
Cell (707) 486-7333
Disclosure and Disclaimer - Updated last on December 11, 2019 by Paul Krsek:
All return calculations for the S&P 500 were done using https://dqydj.com/sp-500-return-calculator/unless otherwise noted.
All charts used in this newsletter are from Stockcharts.com and annotated by 5T Wealth, LLC
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