By Sue Chang – Markets reporter
Published: Aug 17, 2018 12:23 p.m. ET
Depending on how you date it, the bull market is set to become the longest in history
Barring a breathtaking plunge, the bull market in U.S. stocks will on Aug. 22 become the longest in history, and optimistic investors argue it has miles to go before it rests.
The bull has thrived amid a decade of financial and political upheaval, thanks in part to the all-you-can-eat liquidity feast hosted by the Federal Reserve and other major central banks. Now the Fed has shifted to a tighter monetary-policy regime even as the same risks that have dogged this market over the years, including elevated valuations, persist, prompting some pundits to predict an imminent demise of the bull.
But strategists led by John Lynch at LPL Financial argued that the U.S. market still has plenty of upside.
“From tariffs to trade wars to inflation to a flattening yield curve to a global economic slowdown, the headlines continue to cast doubt on the sustainability of this economic cycle and bull market. Although we see several potential stumbling blocks, we continue to believe this economy and stock market rally have plenty of fuel left in the tank,” said Lynch, in a note.
The underlying strength in the market on the back of government spending, robust earnings and improving confidence is expected to carry stocks higher for at least another year, if not longer, he said.
One core reason for Lynch’s upbeat outlook is that he does not see the same types of excesses prevalent at previous market peaks, including obvious signs of recession.
“There are several reasons we don’t expect a recession soon. One is that the past three recessions were preceded by annual wage growth of more than 4%. Recent data showed wages growing at 2.7% year over year, suggesting inflation remains tame,” he said.
The strategist also stressed that the Conference Board’s Index of Leading Economic Indicators, which has turned negative ahead of every recession dating back to the 1970s, has risen an “impressive” 5.8% on a year-over-year basis recently.
“While this bull market and economic recovery may very well be old, adding it all up, we see few signs that suggest an end is near,” said Lynch.
Since March 9, 2009, which marked the low of the financial crisis and which many consider the birth date of the current bull market, the S&P 500 SPX, +0.21% has advanced 320%, the Dow Jones Industrial Average DJIA, +0.41% has risen 286% and the Nasdaq COMP, -0.07% has soared 521%.
Furthermore, 2018 may go down in history as the year in which some popular investing mantras — “sell in May and go away,” notably — are turned on their heads. So far, the year has defied convention, with the S&P 500 climbing almost 7% since the beginning of May.
To be sure, a near-term market retreat may not be completely out of the picture, given the typical seasonal weakness in August and September, but investors should view these dips as opportunities to buy, according to Lynch.
“The S&P 500 closed in the green in April, May, June and July of this year, something that has happened in only 10 other years since 1950. In each of those years, stocks closed higher over the final five months of the year every time,” he said.
His sunny outlook fits with bullish projections from other Wall Street strategists such as Stephen Suttmeier, a technical research analyst at Bank of America Merrill Lynch, who believes the S&P 500 could test 3,000 as early as 2019 given the market’s similarity to the bull market of the 1950s when interest rates started to rise from their lows.
Meanwhile, not everyone agrees that the bull market began in March 2009, with some arguing that it is better understood as having begun in March 2013, when the S&P 500 took out its precrisis closing high, and others contending the current run began as recently as February 2016.
Jeff Saut, chief investment strategist at Raymond James, is one such expert who discounts the theory that a bull market ends whenever there are bone-jarring crashes.
“Just because there is 20% plus pullback, it does not end a secular bull market,” he said.
In his view, the bull market that started in 1949 lasted until 1966, even with the more than 30% slide amid President John F. Kennedy’s 1962 steel crisis. He also argues that the bull market born in 1982 survived until 2000, withstanding the 1987 crash.
Saut, in fact, believes secular bull markets tend to last at a minimum 14 years and predicts this bull have years to go as long as there are no black swans which by definition are events that are highly improbable but have major consequences in retrospect.
By that measure, the bull market may just have hit the best years of its life.
This story was originally published on Aug. 15 and has been updated with new comments and data.