How Long Can Bull Market Last…and Who Cares?

Last week, investors yawned as the bull market continued to roar. US stocks closed at new all-time highs–on the same day–for the 27th time in 2017. For the Dow it was the 59th closing high this year, the 53rd for the S&P 500, and the 64th for the NASDAQ.

This is the second longest bull market on record (the longest was 1982-2000), but there is a missing element to the current bull: investor euphoria. Remember the late 1990s, when everyone was talking about stocks? It certainly doesn’t feel that way today. “Rarely has a bull market been so unloved,” notes Landon Thomas, Jr. of the New York Times, despite a nearly quadrupling of value in the S&P 500. But as this bull approaches its ninth birthday (March 2009), its records seem “to spur more hand-wringing than cheerleading.” That said, stocks are certainly not cheap, but investors, especially the retail ones that call into my podcast and radio show on a weekly basis, seem to be more concerned about the downside, then the upside.

As an old trader, this makes me think that the rally might go on longer, but the more important question than “How Long Can the Rally Last,” should be “WHO CARES?” The reason is simple: it’s a waste of time to try to time the market. Despite the industry’s marketing efforts to convince us that some wizard (analyst, algorithm) behind the curtain can beat and/or time the market consistently over the long term, the data do not bear out that claim.

According to a research report from Standard & Poor’s, over the last 15 years, more than ninety percent of large-cap, mid-cap and small-cap funds lagged their benchmarks. Even those investors who choose index funds flub it. Dalbar has found that over the past 20 years, investors in equity funds have lagged the S&P 500 benchmark by nearly 3 percent per year, on average.

How can you improve your odds? Stop fighting reality and human nature. It is highly unlikely that you or anyone else will consistently beat the market and equally as important, it is highly likely that your emotions may lead you astray. The answer is to employ an asset allocation plan, which incorporates your risk tolerance and time horizon. In doing so, you will put a certain percentage of your portfolio to stocks, commodities, bonds, real estate and cash. While there are years when many asset classes have moved in tandem (2008 and 2015 come to mind), the point of asset allocation is that over the long term, when one part of your portfolio zigs, another zags.

Asset allocation can also be especially helpful when the market reaches extremes—on the upside or downside—these are of course the times when investors may be tempted to override the plan. Research and common sense has shown that an thoughtful and honest asset allocation plan, along with periodic rebalancing, can help investors navigate extreme periods of market movement, without taking any sudden actions.