Stock Market Cycle

[verrip1]

Where do you think we are in the secular/cyclical aspects of the stock market cycles?

The market is in its ninth year of recovery, and has recently performed very strongly with solid new highs.  The recovery, though long in the tooth, has been agonizingly slow until the last few months.  I've been waiting for solid signs that the 17 yo secular bear is over and the stock market has moved into a secular bull.  This might be it!!!  But the slow cyclical recovery has kept me maudlin about that prospect until the recent surge.  I'm still concerned that this surge is not a temporary anomaly, and that yet another bear cycle may occur before a secular bull breakout.

How about you?  Do you think we've entered a secular bull?  Do you even accept the secular/cyclical model?

[djAdvocate]

we are at the end of the secular bear market (and a cyclic bull).

i think from here, we have one more dip down before the return of a secular bull market in the next 1-4 years.

and yes, i am very big on this model.

[verrip1]

Re another dip, I am somewhat uncertain, but think that the probabilities favor calling the secular bull now.  My seat of the pants guess-timate is ~30-40% chance of another dip vs. ~60-70% that the market has turned into a secular bull.

Pros:
1) With the S&P in the 2380s vs. 2130s before the start of the secular bear in 1999, it has surpassed the pre-bear high by just short of 12%.  With that new high, I don't see irrational exhuberance of the sort Greenspan referred to back when.  In fact, I see many market trackers continuing to predict 2017 stock market gains to be on the order of 2-3%.  With new S&P highs and widespread (not universal by any stretch) caution about the year ahead, these seem not be what would be expected for another bear cycle withing the secular bear, rather the early stages of a breakout.

2)  Just as 9 years is long for a bear cycle, so is 17 years in a secular mode.  Should there be another dip of 4 years, there would have been a 21 year secular bear.  While I don't consider 21 years to be outside of the possible range, it would be at or beyond the cusp of likelihood (50% probability).

3)  Looking at the S&P chart, '07/'08 really does look like capitulation to me.  It was much deeper than the '01/'02 bottom which was fueled by the beginning of the secular bear and supplemented by the disaster of 9/11/01.  There has been a strong presence of anti-stock sentiment ever since them.  The proliferation of "gold bugs" (as opposed to thoughtful gold investors who acknowledge that there are good times to own Au, and bad times as well) has not diminished much since the bottom IMO.  Some even view Zero Hedge as a mainstream source of economic information (certainly they points of view to be considered, but not in the mainstream at all).  I see nothing to suggest widespread overconfidence in stocks that would suggest we are at a temporary peak, awaiting only the calendar to drop.

4)  Though unemployment has been reduced since '08 with strength in the last several years, we don't have a shortage of potential new employees overall (certainly not for jobs requiring highly specialized skills, but overall).  There is still a labor source potential in the U6, even though it appears that some in that category continue to be disheartened and tolerate the non-working lifestyle.  So that overall future growth is not labor-limited at this time, and wage inflation is not an issue.

Cons:

1)  There were only two cycles in the secular bear. 

2)  The slow growth from '08 to mid '16 is not indicative of a bull breakout.

3)  The short time frame of S&P high performance may just be nothing more than a volatility anomaly.  Who knows how it might be associated with the political volatility in the US and the worldwide trend towards populism?  But if it is a temporary volatility anomaly, something emotional must be at its base.  The canned answers from the investment media that the spurt is caused by expectations of business growth due to infrastructure improvement proposals (no matter how formative) may not be as vapid as, say, their universal assertions that a bad market day always follows a good market day due to "profit taking".  Such oversimplification doesn't give me any indication of depth of analysis, but WTF, a broken clock is right twice a day.

[djAdvocate]

Mar 4, 2017 14:53:31 GMT -5 verrip1 said:

Re another dip, I am somewhat uncertain, but think that the probabilities favor calling the secular bull now.  My seat of the pants guess-timate is ~30-40% chance of another dip vs. ~60-70% that the market has turned into a secular bull.

answered in line.

Pros:
1) With the S&P in the 2380s vs. 2130s before the start of the secular bear in 1999, it has surpassed the pre-bear high by just short of 12%.  With that new high, I don't see irrational exhuberance of the sort Greenspan referred to back when.  In fact, I see many market trackers continuing to predict 2017 stock market gains to be on the order of 2-3%.  With new S&P highs and widespread (not universal by any stretch) caution about the year ahead, these seem not be what would be expected for another bear cycle withing the secular bear, rather the early stages of a breakout.

and yet the PE ratio never dipped below 10, which would be unprecedented. 

2)  Just as 9 years is long for a bear cycle, so is 17 years in a secular mode.  Should there be another dip of 4 years, there would have been a 21 year secular bear.  While I don't consider 21 years to be outside of the possible range, it would be at or beyond the cusp of likelihood (50% probability).

i thought the AVERAGE for secular bears was 18 years, @verrip.  no?

3)  Looking at the S&P chart, '07/'08 really does look like capitulation to me.  It was much deeper than the '01/'02 bottom which was fueled by the beginning of the secular bear and supplemented by the disaster of 9/11/01.  There has been a strong presence of anti-stock sentiment ever since them.  The proliferation of "gold bugs" (as opposed to thoughtful gold investors who acknowledge that there are good times to own Au, and bad times as well) has not diminished much since the bottom IMO.  Some even view Zero Hedge as a mainstream source of economic information (certainly they points of view to be considered, but not in the mainstream at all).  I see nothing to suggest widespread overconfidence in stocks that would suggest we are at a temporary peak, awaiting only the calendar to drop.

these are good points, but (8) years is really short for a secular bear.

4)  Though unemployment has been reduced since '08 with strength in the last several years, we don't have a shortage of potential new employees overall (certainly not for jobs requiring highly specialized skills, but overall).  There is still a labor source potential in the U6, even though it appears that some in that category continue to be disheartened and tolerate the non-working lifestyle.  So that overall future growth is not labor-limited at this time, and wage inflation is not an issue.

i think there is some structural reshaping in UE since 2000.  women, who had been migrating into the workforce due to opportunity, and a number of other economic and social factors, stopped entering the work force, and are now leaving it at about the same rate as men.  this trend is well understood in Europe, where WFP of below 60% is quite normal. 

Cons:

1)  There were only two cycles in the secular bear. 

2)  The slow growth from '08 to mid '16 is not indicative of a bull breakout.

3)  The short time frame of S&P high performance may just be nothing more than a volatility anomaly.  Who knows how it might be associated with the political volatility in the US and the worldwide trend towards populism?  But if it is a temporary volatility anomaly, something emotional must be at its base.  The canned answers from the investment media that the spurt is caused by expectations of business growth due to infrastructure improvement proposals (no matter how formative) may not be as vapid as, say, their universal assertions that a bad market day always follows a good market day due to "profit taking".  Such oversimplification doesn't give me any indication of depth of analysis, but WTF, a broken clock is right twice a day.

i think you should try looking at the inflation adjusted returns for indication of secular bear- but of course, that extends out the bear market longer. 

you MAY be right, verrip.  the bull might have started in 2009.  i just have my doubts.  it would take about a 50% loss to get S&P PE ratios below 10, which is what i would "like" to see before i declare it over, but i CONCEDE that this low interest rate environment makes that idea dubious.

so, we wait, and see.

[flow5]

It's unusual.  But I think Caldaro and the Elliott Wave theory is correct. 

caldaro.wordpress.com/

"A Super cycle bear market ended in 2009 at SPX 667. A Primary I bull market ended at SPX 2135 in 2015. A Primary II bear market ended at SPX 1810 in 2016. And a Primary III bull market has been underway since then. The first phase, Major wave 1, of the five Major wave Primary III bull market is underway. Major wave 1 is dividing into five Intermediate waves. Intermediate waves i and ii completed in April and June. Minor waves 1 and 2, of Int. iii, completed in August and November. Minor wave 3, of Int. iii, has been underway since then. Still expecting a top around SPX 3000+ between the years 2018 and 2020."

I.e, the IOeR, the fibonacci sequence, and the NBFI's funding "Mason-Dixon line" concur.  As long as IBDDs are remunerated, there will be subpar economic growth, but also an extended period of quiescent inflation (2017 will be an exception - it will reverse to the downside in 2018).  Thus, the Mason-Dixon line (where the NBFIs compete for wholesale funding with the DFIs and their IOeR), won't conflict to the extent they did in the 1966 S&L credit crunch.

[djAdvocate]

thanks for posting that, flow.  i have to take off in a few minutes, but i will dig into this later this weekend!

[Aman A.K.A. Ahamburger]

Do you even accept the secular/cyclical model?

It's a great debate and all sides seem to have merit; I don't doubt cycles that is for sure.

Seems to me that the debt market has more to do with it that anything; especially since the creation of the junk bond market in the 1980's.

It seems to me that we are in a bull market in stock since 2009, the returns speak for themselves. I think the USA is doing better than most people give it credit for; as always. But I think the next crisis is WW3. There is a lot of very crazy thing going on all around/related to the war that has been going on for 15 years; a lot of which is denied/ignored/buried.

Within the WW3 crisis the international debt market is in trouble. From there things like pensions(which we are already seeing troubles with) are in under the microscope, along with anything debt based that doesn't produce a ROI.

Sorry, I know it's not exactly what the OP is about, but FWIW; my thoughts are whatever cycle we were on until the end of 2015(I had mentioned this date for years prior)started shifting to a decade of change cycle. I'm looking forward to about 2025 and beyond.

[djAdvocate]

Mar 4, 2017 15:52:40 GMT -5 flow5 said:

It's unusual.  But I think Caldaro and the Elliott Wave theory is correct. 

caldaro.wordpress.com/

"A Super cycle bear market ended in 2009 at SPX 667. A Primary I bull market ended at SPX 2135 in 2015. A Primary II bear market ended at SPX 1810 in 2016. And a Primary III bull market has been underway since then. The first phase, Major wave 1, of the five Major wave Primary III bull market is underway. Major wave 1 is dividing into five Intermediate waves. Intermediate waves i and ii completed in April and June. Minor waves 1 and 2, of Int. iii, completed in August and November. Minor wave 3, of Int. iii, has been underway since then. Still expecting a top around SPX 3000+ between the years 2018 and 2020."

I.e, the IOeR, the fibonacci sequence, and the NBFI's funding "Mason-Dixon line" concur.  As long as IBDDs are remunerated, there will be subpar economic growth, but also an extended period of quiescent inflation (2017 will be an exception - it will reverse to the downside in 2018).  Thus, the Mason-Dixon line (where the NBFIs compete for wholesale funding with the DFIs and their IOeR), won't conflict to the extent they did in the 1966 S&L credit crunch.

i am not super keen on the short term view of this site.

that having been said, this site basically confirms the points made above:

www.advisorperspectives.com/dshort/updates/2017/03/01/a-perspective-on-secular-bull-and-bear-markets

i knew that we were testing new inflation adjusted highs, but i didn't know we had broken them!!!!

so, yeah, this might have been a really short bear.  i should have stayed more on top of it.  i got out early expecting a retrench, and it really didn't happen.  this cyclic (secular) bull has been VERY persistent.

so, i guess the question i have for YOU guys is this:

the shortest bull we have on record is (8) years.  average is (18).  so, are we looking at average or short, in the opinions of all here?

[Aman A.K.A. Ahamburger]

If you look at the charts since 2009, there have been 3-4 times where the bull was essentially taken out. IMO, HFT has made rebounds the "snap-back" moves we have seen in that time; its also allowed the market to trade "sideways" for a stretch during that period as well.

The underlying issue here is we are already long in the tooth P/E wise, more importantly, negative interest rates are fraud. If you think about the fraud that went on in the mortgage market prior to 2008, then amplify that due to the size of the sovereign debt market...

Bottom line; BS economic numbers out of China has, IMO, allowed analysts and market movers to justify current P/E ratios. China is running on fumes and has deployed to Afghanistan.

Just my thoughts, but we are probably about 15-18 months until reality sets in.

[thyme4change]

I am thinking I am in a good place to look forward to a comfortable retirement in 12 years or so. So, pretty sure that means market implosion and maybe the end of our country as a whole.

[verrip1]

Mar 6, 2017 13:05:59 GMT -5 thyme4change said:

I am thinking I am in a good place to look forward to a comfortable retirement in 12 years or so. So, pretty sure that means market implosion and maybe the end of our country as a whole.

Nah, thyme, it just means that you're a contrarian in good standing. 

[verrip1]

dj:

Going back to the data, I see that my recollection rather failed me re length of market cycles, and your numbers were closer than mine. 

Regarding employment, it may well be that labor participation is softer due to recent societal mores (which could, in themselves, be cyclical things), but I'd guess that it might well also be a soft commitment, ready to become an available source of labor when wages rise sufficiently to motivate and when a rising standard of living for everyone else is a temptation. 

But I'm not married to the conclusion that we've entered a secular bull, I just consider it a somewhat stronger probability.  And I just wanted to banter the idea around a bit. 

[Rob Base 2.0]

I don't know what the secular cycle thingee is but I think market continues an upward trend for the next year and half (despite Trump doing stupid carp like this wire tap thing)

The economy hasn't gained 3 % in over 8 years so the economy is looking for any excuse to explode. That translates into higher stock market. After the year and half from that pint fwd it all depends on how well Trump has done from inauguration to that date.

[verrip1]

Rob, I've never been a fan of the idea that US Presidents create market cycles, though it's a popular idea on politics boards (noting that political boards blame or laud Presidents over everything that occurs).  To the degree that any President or any Congress affects market cycles, it would be a matter of degree, not overall direction of the cycle.  Further that it would have to result from some direct act, like a change in fiscal policy.  If one wants to say that President X improved the stock market, just what new fiscal policies were put into effect to cause that?   If President X didn't do anything specific, he/she can't be awarded credit for it - IOW, just happening to be there at the time doesn't equate to causation.  If Congress Y didn't undertake spending or revenue or employment, etc. changes, they can't reasonably be given credit for an improved stock market either.  Same would be true for down markets - if you want to assign governmental fault to a down market, what specific action(s) were taken that caused it?

[flow5]

Stocks are due for an interruption.  Real money, M1, will probably turn negative in the next 2 months.

[flow5]

seekingalpha.com/article/4052425-stocks-post-35-year-breakout

A broad index has cleared levels that acted as resistance in 1998, 2007, and 2015.

[djAdvocate]

Mar 6, 2017 13:42:58 GMT -5 verrip1 said:

dj:

Going back to the data, I see that my recollection rather failed me re length of market cycles, and your numbers were closer than mine. 

Regarding employment, it may well be that labor participation is softer due to recent societal mores (which could, in themselves, be cyclical things), but I'd guess that it might well also be a soft commitment, ready to become an available source of labor when wages rise sufficiently to motivate and when a rising standard of living for everyone else is a temptation. 

But I'm not married to the conclusion that we've entered a secular bull, I just consider it a somewhat stronger probability.  And I just wanted to banter the idea around a bit. 

i look into this deeply every year or two.  the last time i looked into it (a couple of years ago), the S&P 500 long term inflation adjusted chart said "secular bear" to me.  THIS time, however, i would rate it "inconclusive".  if someone pushed me on it, i would have to admit that it LOOKS like it is no longer the case.

so, yeah- i think we are in about the same spot, verrip.  i am going to continue winding down my metals and buying value, but i am not really convinced yet that we won't get a good ass kicking in the next year or two.

[djAdvocate]

Mar 6, 2017 14:23:02 GMT -5 alwaysbeoptimizing said:

Mar 3, 2017 15:23:04 GMT -5 djAdvocate said:

we are at the end of the secular bear market (and a cyclic bull).

i think from here, we have one more dip down before the return of a secular bull market in the next 1-4 years.

and yes, i am very big on this model.

do you mean you anticipate a strong 17 (ish) year upswing? (with obvious ups and downs along the way).

I'm not a market timer, but this would play big into my retirement planning

it is a bit more complicated than that, always.

this theory (the secular bull/bear) theory goes back a long way.  the basic idea is that the market moves in 9-30 year intervals.  in the secular bear intervals, there is no NET return during the period.  in the secular bull intervals, the market gains 200-700%.  so, if you know that you are in a secular bull market, you want a 0% cash position, and a very aggressive positioning.  also, you can just buy mutual funds in a secular bull market, as only really foolish choices can land you in trouble.

secular bears are much trickier.  i am not even going to comment on them, other than to say that i tend to think of them as "experts markets" where average investors tend to lose money.

if you are 100% convinced we are in a secular bull, then it should last another (8-9) years.  i am not totally convinced.  but i am also really shocked at how persistent this CYCLIC bull has been, if that is what it is.

edit: forgot to add this:

www.crestmontresearch.com/docs/Stock-Dashboard.pdf

[ken a.k.a OMK]

The sun spot cycle is more predictable the the stock market. 

[djAdvocate]

Mar 6, 2017 19:15:58 GMT -5 ken a.k.a OMK said:

The sun spot cycle is more predictable the the stock market. 

that is not a fair way of dismissing the argument.

you will not catch me EVER doing day to day, month to month, or even year to year predictions in the stock market.  it is a fools errand, and i won't take it.

HOWEVER, the long term cycles are FAR more persistent.

can you get a radical change in the long term trend?  SURE!  a catastrophic event can break down a trend.  but it is good to remember where you are, in life and in investing.

a good example of this was 1987, when the stock market lost about 1/4 of it's value in just a few days.  that was, as it turns out, a minor setback in a SECULAR BULL MARKET that lasted (18) years.  in fact, the market was actually UP in 1987.  people who are shaken by sudden events that have no real basis are often scared out of investing at what is actually a buying opportunity.

in conclusion, i think that the market is quite predictable in 1-3 decade intervals.  but you can think whatever pleases you.  i would have to add, however, that knowledge of long term cycles has given me a 20+% ROR for the entire time i have been investing.  it might not be the KEY element to my thinking, but it informs every choice i make.

[ken a.k.a OMK]

Sorry djAdvocate I have no knowledge in the financial discussion. I was just being funny. Retired Electrical Engineer geek. I pay attention to what you all write, but don't understand the logic (or illogical) methods. I know about mathematical analysis, but the markets seem driven by the weather. 

I think you once proved to me that I'd have made more money if I payed attention, but I'm happy where I am. Followed some old advice, like "money makes money" and "a penny saved is a penny earned."  Oh and compounding interest. Ben Franklin? Not bad for an engineer. 

[djAdvocate]

Mar 6, 2017 19:46:35 GMT -5 ken a.k.a OMK said:

Sorry djAdvocate I have no knowledge in the financial discussion. I was just being funny. Retired Electrical Engineer geek. I pay attention to what you all write, but don't understand the logic (or illogical) methods. I know about mathematical analysis, but the markets seem driven by the weather. 

I think you once proved to me that I'd have made more money if I payed attention, but I'm happy where I am. Followed some old advice, like "money makes money" and "a penny saved is a penny earned."  Oh and compounding interest. Ben Franklin? Not bad for an engineer. 

actually, long term weather patterns are pretty consistent, too. 

[ken a.k.a OMK]

I'm also a ham radio operator and the 11 year sunspot cycle affects communications. Rings on tree trunks show growth cycles that match the sun spot cycle. 

[djAdvocate]

Mar 6, 2017 19:59:55 GMT -5 ken a.k.a OMK said:

I'm also a ham radio operator and the 11 year sunspot cycle affects communications. Rings on tree trunks show growth cycles that match the sun spot cycle. 

my wife is a ham.  i know all about it.  unfortunately. 

[ken a.k.a OMK]

Mar 6, 2017 20:05:13 GMT -5 djAdvocate said:

Mar 6, 2017 19:59:55 GMT -5 ken a.k.a OMK said:

I'm also a ham radio operator and the 11 year sunspot cycle affects communications. Rings on tree trunks show growth cycles that match the sun spot cycle. 

my wife is a ham.  i know all about it.  unfortunately. 

Really? Radio amateur? PM me her call.

[Aman A.K.A. Ahamburger]

Mar 6, 2017 15:50:23 GMT -5 verrip1 said:

Rob, I've never been a fan of the idea that US Presidents create market cycles, though it's a popular idea on politics boards (noting that political boards blame or laud Presidents over everything that occurs).  To the degree that any President or any Congress affects market cycles, it would be a matter of degree, not overall direction of the cycle.  Further that it would have to result from some direct act, like a change in fiscal policy.  If one wants to say that President X improved the stock market, just what new fiscal policies were put into effect to cause that?   If President X didn't do anything specific, he/she can't be awarded credit for it - IOW, just happening to be there at the time doesn't equate to causation.  If Congress Y didn't undertake spending or revenue or employment, etc. changes, they can't reasonably be given credit for an improved stock market either.  Same would be true for down markets - if you want to assign governmental fault to a down market, what specific action(s) were taken that caused it?

Great points!

IMO, all Trump can do is make sure the Republic is secure for the next phase.

Further, seems to me we are at the end of a debt cycle that started with FDR and the New Deal...

[Aman A.K.A. Ahamburger]

Mar 6, 2017 19:59:55 GMT -5 ken a.k.a OMK said:

I'm also a ham radio operator and the 11 year sunspot cycle affects communications. Rings on tree trunks show growth cycles that match the sun spot cycle. 

Interesting; that puts a ton of merit into what this guy is saying.

Are we living in a warm peak between ice ages?

Also; FWIW for anyone getting close to retirement.

Retirement: The One Thing Couples Shouldn't Do Together