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A Stock Market Pullback may Help Fuel the Next Leg of this Secular Bull Market

Many analysts believe that we are likely (perhaps long overdue) to experience a pullback in the short term as opposed to a more severe market correction or even a stock market crash.  The differences between these three down market cycles are critical when defining and implementing an appropriate, complementary investment strategy.

  1. A stock market “pullback” is defined as a decline in stock valuations between 5% – 10%
  2. A stock market “correction” is defined as a decline in stock valuations between 10% – 20%.
  3. A stock market “crash” is defined as a decline in stock market valuations of over 20%.

We believe that we are currently within the midst of a longer term secular bull market.  A secular bull market is generally referred to when the overall trend of the stock market is “bullish” longer term, lasting between 5 and 25 years.  During secular bull markets, stocks tend to rise in price more than they fall in price with the declines being less significant and offset by the subsequent increases in prices.    To this end, we believe that March 9, 2009 marked the beginning of this most recent secular bull market, meaning that we are at least 9 years away from reaching the average secular bull market cycle of 14.7 years.
                                                                   

  Historical Secular Bull Markets

Time Period Duration (in years)
1815-1835 20
1843-1853 10
1861-1881 20
1896-1906 10
1921-1929 8
1949-1966 17
1982-2000 18
Average Secular Bull Market Length 14.71

Source: Gold-Eagle.com, “Secular Market Trends” article, April 29, 2014

Given the gradually firming foundation of our U.S. economy and the activist nature of the Federal Reserve, we find more rationale to support further upside potential in the stock market than a significant market downturn.  Regardless, we do not dismiss the potential for intermittent periods of stock market volatility over shorter term durations.    However, we do not currently believe that any downturn in the market would exceed a “5% – 10% pullback range” since so many investors have long been awaiting a pullback before adding investment dollars to equity-oriented strategies.  Hence, a pullback could actually help fuel the next leg of this secular bull market.

As a result, we, at Hennion & Walsh, feel that an appropriate investment strategy for this outlook would be to create (or maintain) a diversified, growth portfolio that could help investors navigate through a short term market pullback while still being positioned for the next leg of this bull market cycle.

Our views on the stock market cycles discussed in this piece are for educational purposes only and should not be considered as a solicitation to purchase or sell any of the strategies mentioned.  As a reminder, past performance is not an indication of future results.