Reflections on the bull market's fourth birthday

Wall Street's current bull market has lasted four years.

Contrary to a widespread current worry among some on Wall Street, bull markets do not die of old age,

The occasion for their concern is this bull market's fourth birthday, which it celebrates this week. Of the 38 bull markets since 1900 in the calendar maintained by Ned Davis Research, 33 never lived as long. The average length of all 38 bull markets is 25 months (just over two years) and their median length is 22 months (less than two years). That certainly seems to imply that the current bull market is getting long in the tooth.

It's a statistical sleight of hand to conclude from this that old age is what causes bull markets to end, however. To be sure, since no bull market lasts forever, one could tell a story in which old age appears to be the cause of death - just as you could argue (incorrectly) that, since night follows day, day is the cause of night.

The real causes of bull markets' deaths are far more mundane, however: Recessions (13 of the 22 bear markets since 1950 were accompanied by a recession), investor exuberance (can you say "dot-com bubble"?) or some external shock (such as a war or pandemic). Analysts who forecast an imminent bear market because of the bull market's age are grasping at straws to justify a belief they have reached for other, unstated reasons.

Has this bull market risen too far?

Another question that some investors are asking is not whether the bull market is too old, but whether it has risen too far. The subtext of their question is the worry that, just as Icarus soared so high that the sun melted his wings of wax, a market that rises too far is prone to crashing. And this does appear to be a genuine concern: Over the past four years, the S&P 500 SPX has produced a 131% cumulative total return (equivalent to 23.3% annualized - nearly triple the market's historical average).

A four-year return this impressive is nowhere close to being a record, however, according to an analysis completed last week by Edward McQuarrie, an emeritus professor at Santa Clara University, and William Bernstein, a former neurologist and founder of advisory firm EfficientFrontier.com. The duo measured the stock market's trailing four-year total return for each month since the late 1700s, finding many instances in which it was better than it has been currently. In several cases, these past-four-year advances far exceeded the market's recent return.

In short, the bull market's pace of advance is hardly noteworthy: "It happens all the time... No biggie. Not even close," they wrote.

McQuarrie and Bernstein next expanded their horizon to look at trailing 17.5-year horizons, since that is how long it's been since the March 2009 bottom that followed the global financial crisis. Some believe that this is how old the current bull market really is, on the theory that the bear markets since then don't realty count - the one that accompanied the onset of the COVID-19 pandemic was supposedly a one-off event, for example, and the 2022 bear market was so modest.

Even if you accept this theory, however, there's nothing particularly unusual about how high the market has risen since 2009. There have been several other 17.5-year periods in U.S. history in which the stock market performed significantly better.

The bottom line? You can certainly believe that a bear market is imminent. Just don't try to justify your belief by referring to the bull market's age or height.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

-Mark Hulbert