The Bull Market No One Sees
The most important definition in finance... The confusing state of the market... Why the very long-term trend is king... This boom didn't begin when you might think... Now's not the time to give up on stocks...
Most folks outside the world of finance don't sweat the definitions...
Ask the average man on the street, and he might not know the difference between a bull market and a bear market. He may have heard the terms. But knowing which one's which? For him, it's a coin flip.
Still, if that guy has any investments, he'll at least know that the market has two states... going up and going down. And the truth is, that's not far off from what finance pros do...
They just dress it up a bit...
- A bull market is when stocks are going up.
- A bear market is when they're going down.
Those definitions are purposely vague. Every market analyst has his or her own definition of "going up" and "going down." Generally speaking, though, it's easy to tell which state the market is in when you're in the middle of either trend, no matter your definition of them.
But the water gets murky when you're moving from one trend to another. Big changes can be surprisingly difficult to spot... And what do you call a market that many people think could be going up and down without any real long-term trend, anyway?
It can be hard to say.
Now, I (Brett Eversole) am about to make this game sound even murkier for you... but as you'll see, what I'm about to describe may make what's going on in today's market clearer...
In reality – and what the man on the street also doesn't know – there are two kinds of bull markets and two kinds of bear markets...
- Cyclical: This is what happens over 12 to 18 months.
- Secular: This is what happens over 12 to 18 years.
Everyone knows a bear market began last year. Stocks fell 20% from their highs – the most common threshold for "going down."
But here's the thing...
We're actually in a bull market and a bear market right now...
The cyclical (12- to 18-month) trend is bearish. But the secular (12- to 18-year) trend is still bullish.
The truth is that 99% of the time, folks use "bull market" and "bear market" to describe the cyclical trend. Most of them aren't talking about the secular trend, which lasts much longer...
In fact, I'd bet less than 1% of folks even realize these long, secular trends even exist.
Looking at a long-term chart of the stock market doesn't help, either. Here it is since the U.S. benchmark S&P 500 Index came into existence in the 1920s...
There are some wiggles here and there. But for the most part, this chart moves from "lower left to upper right." If you didn't know better, you'd think stocks just consistently move higher over any long-term period...
You might say the secular trend has always been bullish since 1928.
Of course, we know looks can be deceiving.
Here's the same chart again. This time, I've overlaid the long-term secular bull and bear markets...
The green boxes show the secular bull markets. The red boxes are the secular bear markets. And once you spot the differences, they're hard to ignore.
Over time, the market experiences long periods when stocks go nowhere... followed by long periods when stocks go up and up...
We also get shorter, cyclical trends that might move opposite the direction of the secular moves... You'll notice big moves higher during the secular bear markets and big moves lower during secular bull markets.
But the secular trend always takes over again. And that's the true driver of stock returns.
I can't overstate how important it is to understand the secular trend. It's the difference between flying forward with a gale-force wind at your back or getting hit with one head-on.
Here are the various secular trends we've seen over nearly a century. The secular bear markets are in red, and the secular bull markets are in green. Take a look...
It's clear how critical the secular trend is to making money. Stocks had 20 years of no returns from 1929 to 1949. Imagine that... not a single "lost decade," but two.
But then came an incredible secular boom. Stocks soared for 19 years, rising 16% per year. That's enough to grow $10,000 into nearly $170,000!
The fun ended in 1968. Investors ran into a rough economic period and the inflationary 1970s... And stocks moved up just 4% a year over 14 years. Not only that, but those numbers don't account for inflation. In real terms, investors lost money during that secular bear market.
That long stretch of terrible returns turned just about everyone off of stocks. The famous "The Death of Equities" headline appeared on the cover of BusinessWeek in 1979, declaring that inflation was destroying the stock market.
But just a few years later, the market bottomed, and the next secular boom began.
This one was the best of the bunch. It ran from 1982 to the dot-com peak in 2000... And stocks soared 20% per year over that time. That boom would have turned $10,000 into more than $250,000.
These cycles always flip, though. And after that, we got 13 years of nearly dead money. Stocks moved up just 2.5% per year from the 2000 peak to 2013, when the current secular bull market began.
You might be thinking, '2013?'
Everyone knows stocks bottomed in March 2009. Wasn't that the beginning of the bull market?
Well, that's not how secular bull markets work...
To find the long-term secular trend, we need to wait for stocks to stage a major breakout to a new all-time high. Only then can we know for sure that the overall trend has shifted.
Stocks broke out to a new all-time high in 2013. That's when this secular bull market began. It's just shy of 10 years old, as I write. And stocks have jumped nearly 13% per year during that time.
"Fun history lesson," you might say. "But come on, Brett. That secular bull market obviously ended last year!"
That's what most folks would expect. But as I will get into tomorrow, history tells us it's not the case. The truth is that what's happening right now is completely normal... even in the middle of a secular bull market.
This secular bull market has plenty of room left to run...
And I believe the smart bet is that this boom will run through the end of this decade.
There are a couple of simple and logical reasons why. And I'll share them in more detail in tomorrow's Digest.
In fact, the stock market could soar to unimaginable heights by the time this boom is over. I don't say that lightly...
My research shows that the Dow Jones Industrial Average could soar to 150,000 – or even higher – by the time this secular bull market ends. That's nearly 350% growth from today's levels. And if you pick the right stocks along the way, you could make thousands-of-percent gains during this period.
The continuation of this secular bull market has huge implications for investors. It means that despite all the sour headlines and predictions about the future, the good times of the past decade aren't over... far from it.
It won't be all sunshine and roses, though. If you own the wrong stocks – and I'm talking about some of the biggest and most-loved names today – you could end up losing money while the overall market soars.
In short, there's a right way to play this market and a very wrong way...
That's why my longtime mentor, Dr. Steve Sjuggerud, has planned a special event for tomorrow evening to share the full details. This is Steve's first time doing an event like this in nearly two years.
He's stepping forward because when he uncovered what I've started to talk about today, he dropped everything to get the word out. The great thing is this event is free to attend. It begins at 8 p.m. Eastern time tomorrow. You can sign up for it right here.
Just for tuning in, you'll also get the names and tickers of two stock ideas, completely free. One is a company we expect to soar during this continued boom. The other is a popular one you should avoid at all costs.
This prediction – "Dow 150,000" – might sound bombastic or unrealistic today. But that's the point. Understanding this misunderstood reality in the markets is key to thriving in the years to come. And we look forward to sharing the details with you tomorrow evening.
New 52-week highs (as of 1/27/23): Arafura Rare Earths (ARAFF), Atkore (ATKR), SPDR Bloomberg 1-3 Month T-Bill Fund (BIL), BorgWarner (BWA), Parker-Hannifin (PH), Starbucks (SBUX), and iShares 0-3 Month Treasury Bond Fund (SGOV).
In today's mail, feedback on Dan Ferris' latest Friday essay and thoughts on my Masters Series essay from Saturday... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Dan, I think your view of interconnectedness is extremely important. You don't get a mega bubble without interconnectedness. It's all about everyone trying to leverage the gains and there are only so many ways to leverage those gains. When the trade turns around it is everyone trying to get out of those leveraged positions at the same time.
"Have you noticed how all the bulls are younger? While the bears are patient and older, e.g. Druckenmiller, Zell, Bonner and Buffett. It appears to be a very persistent pattern to me. I think the bulls haven't experienced a long bear period and they are caught up in all the mantras about how the Fed and government control the markets. Yes they did until they don't..." – Paid-up subscriber Al M.
"Yes, inflation may subside but it may not retreat as quickly as it came. Equities may rally despite the inverted yield curve. The inflation aftershocks may be waning but the next quake may be the debt bubble breaking due to the high interest rates that came from the war on inflation... and recession is not off the table as unemployment begins to accelerate. All of the afterquakes may have a relationship whether it be time, proximity or just part of the ring of fire." – Paid-up subscriber Rick T.
Good investing,
Brett Eversole
Jacksonville, Florida
January 30, 2023