Are We In A Secular Bull Market?

Just recently, Jeff Saut from Raymond James made a very interesting statement with respect to the recent market decline.

“Speaking to last week’s Dow Theory sell signal, we really cannot decide to ignore it, as we did with two previous false sell signals, or honor it because we continue to believe this is a secular bull market.”

It is an interesting point and one that has been prognosticated by several Wall Street analysts and bloggers in recent months like Josh Brown who recently penned:

“If Ari is correct, then we are currently enduring a cyclical bear market but the secular bull market that began in 2013 with fresh S&P 500 record highs is still intact.”

Here is the problem with the analysis.

Secular markets, bull or bear, are not defined by price movements.

For example, if the market is down 20%, the technical definition of a “bear market”, then any rallies and subsequent declines that set new lows, are not defined as a “secular bear market.” It is just a “bear market” where prices are “trending” lower rather than “higher.”

What defines secular, or very long-term, markets are valuations. 

The chart below shows the history of secular bull market periods going back to 1871 using data from Dr. Robert Shiller. One thing you will notice is that secular bull markets tend to begin with valuations around 10x earnings and end at 23-25x earnings or greater. (Over the long-term valuations do matter.)

But, here is the other problem I have with both Josh and Jeff’s thesis of a price based breakout defining a new secular “bull” market.

The chart below compares the last secular “bear” market that ran from 1963 to 1982 as compared the current cycle. Notice the chart for this previous period stops in 1973. I will show you the rest of this period in a moment. Also, importantly, note the level of valuations.

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Disclosure: The information contained in this article should not be construed as financial or investment advice on any subject matter. Real Investment Advice is expressly disclaims all liability ...

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