Actually, Technically, the Longest

Longest ever?

The US stock market closed August to the accolades of  “the longest bull market in history.”  By some measures, the S&P 500 achieved its longest rally ever.  Then again, by other measures, it did not.

S&P 500, 1927 to 2018


 Monthly close, inflation adjusted. Souce:

There’s a lack of consensus on how this achievement should be measured. And it’s made worse by the many news stories that don’t explain the different measures.  Here are just a few intricacies that can affect measurement results.

  • Market or index used
  • Time-period of consideration, which years or months
  • Time-period for price measurements, day or month, open, close or intra-period
  • Method of calculating returns
  • Definition of  a bear market, percentage move, from what point
  • Definition of a bull market, percentage move, from what point
  • Nominal or inflation-adjusted prices…

But technically…

The list goes on and the splitting of hairs can seem outright irrelevant.  For example, by one measure based on the S&P 500 the current bull market became the longest by surpassing the tech-boom rally that started in 1990.

However, some argue the tech-boom actually started in 1987, and if so, would still be the longest on record.  Whether we use 1990 or 1987 as a starting point boils down to “rounding” of percentages (or not).   Between 1987 to 1990, the S&P 500 had a high-to-low decline of -19.92% and many consider that to meet a bear market definition of -20%.

However, others point out 19.92%, actually, technically, is not 20.00%.   They argue precise definitions should be followed precisely for clarity and consistency, and not just when convenient.  They have a point.  Then again, why is 20.00% the definition for bear markets?  Why not 20.10% or 19.90%?  I suspect convenience has something to do with it.

In another case, if we use monthly data instead of daily, results look much different.  Using nominal, monthly data, the longest bull market for the S&P 500 spans over 15 years from late 1940 to early 1960.  From that perspective, the current rally has only made it 2/3rds of the way to longest ever.

The bottom line

Technicalities aside, how much do these details really matter?  What changes, materially, for the market between 19.9% or 20.1%?  It’s more important to see the big picture and to understand the implications.

The US stock market is in one of the longest expansions in history and valuations are not cheap if not already elevated — this much is hard to deny.  Markets don’t die of old age, and valuations are a terrible tool for timing,  but still, it’s hard to find compelling, market-level values in the US right now.

If you’ve been following the blog you’ll know I’ve been primarily looking outside the US for opportunities.  To be sure, valuations have risen around the world and good values are getting harder to find, but they’re still out there for those on the hunt.

Victor K. Lai, CFA