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Bull Markets Don't Die of Old Age

Bull Markets Don't Die of Old Age

After a big Sell-off day like we experienced this past Friday, there is always the inevitable parade of articles and media quotes suggesting that this is the beginning of “the big correction”.  One can certainly make arguments for both the Bull and Bear case in U.S. Equities currently, but Bull markets don’t simply die because they have lasted for quite some time.  Generally speaking, Bull markets are killed by elevated interest rates and investor over-enthusiasm.  We currently have neither one. Median interest rates after 6 six years of a Bull market are 4.7% - we are at 2%; and pessimisism has only turned more acute this year.

From Market Watch via Blackrock and Oppenheimer:

What kills a bull market?

Bull markets die when they get out of control and the Fed finishes them off, many strategists said. Recessions also kill bull markets, but those too can be brought on by the Fed attempting to rein in an overheating economy. What’s different about this bull is that the recovery has been so slow and grudging, the Fed is nowhere near pulling the plug and hiking rates aggressively, BlackRock’s Koesterich said. “The Fed remains cognizant of the weakness in the economy,” said Oppenheimer’s Stoltzfus. “As long as interest rates don’t rise sharply, it should be a positive for U.S. stocks.”

From Market Watch via B of A Merrill Lynch and Charles Schwab:

Pessimism nurtures the bull “Bull markets don’t die of old age, they die of high expectations and overallocation,” said B. of A. Merrill Lynch’s Subramanian. Using a sell-side consensus indicator as a guide, enthusiasm for stocks has actually waned recently, and that’s good for the bulls. One marked difference in this bull market is the “pervasiveness of investor skepticism,” said Schwab’s Sonders. “I witness the absence of the kind of euphoria you might expect at this stage of a strong bull market at client events all the time,” Sonders said. “I can’t remember the last time I was asked a question in a presentation that had an optimistic undertone to it.” In a way, it is that pessimism that’s keeping the market “honest,” seeing it’s unbridled investor exuberance that overheats markets and create bubbles."

See the original article here: