Run Bull! Run!

As global markets knock new highs, an inevitable question arises: At four and a half years, is this bull done running?

Before answering, think if you've heard anyone questioning the longevity of this bull market before. We recall cries of "It's over!" last summer—but it wasn't. In 2005, we were treated to headlines like "Tired Bull" and "No More Bull." Come to think of it, folks have been forecasting the demise of this bull since, well, the start of it.

This is no different from any other bull market. Remember Mr. Greenspan's famous "irrational exuberance" phrase? Three years too early. Folks fretted the end of the 1990s bull run the entire decade—right up until they were convinced it would never end. Bull markets end for any number of reasons—but age isn't one of them. The following article strives to delineate how today's environment is different from the tech bubble in early 2000, and we agree:

Getting Dizzy? Stocks May Not Be as High As They First Appear
By Ian McDonald, The Wall Street Journal (*site requires registration)
https://online.wsj.com/article/SB118063928630820364.html?mod=todays_us_the_journal_report

But what's not different is that markets move, have moved, and always will move not on what's widely known but on the unknown or misperceived. The housing "bubble" has long been fretted, as have the weak dollar and "slowing" earnings growth (though earnings growth is fine, it's just not record-breaking). These market fears are too well canvassed to have any impact—and aren't the market negatives everyone assumes, anyway!

But is the market too high? Consider this: If the S&P 500 were selling at the same P/E it did at the peak of the last bull, it would be at about 2600, not 1500 (based on trailing 12-month operating earnings). Does that mean the American bull has to run to 2600? Heck no! It might, it might not, and it might go even higher—but just as there's no right length, there's certainly no right height to a bull.

If you cannot rely on length, height, averages, or the media to warn you when it's time to batten down the hatches, how do you know when a bear is lumbering your way? Easy—there must be some big, bad, negative fundamental developing. But it must be an actual negative fundamental—a weak dollar, for example, is widely feared. But weak or strong, currencies don't dictate market direction. Also essential—this negative fundamental (or fundamentals) must not be widely recognized. Negative news already widely known and fretted cannot impact the market—the market is too efficient for that. Anything broadly known is already reflected in today's market prices.

But even little-noticed negative fundamentals aren't enough. To develop into a full-fledged bear, there must be euphoric sentiment. There's a very true aphorism that markets climb a wall of worry. Euphoria is the absence of worry—there's no wall left to climb. Whereas, dour sentiment means there's additional upward buying pressure left.

Until we have euphoric sentiment coupled with little-noticed, materially negative fundamentals, this bull will run. How long will it be? Who knows . . . but at least until we see no more articles like this one:

Still Holding at Moderately Bullish
By Dick Green, Briefing.com
https://www.briefing.com/GeneralContent/Investor/Active/ArticlePopup/ArticlePopup.aspx?SiteName=Investor&ArticleId=NS20070604070012MarketView

The article states, "We are not great believers in this rally." Fine by us. That pessimism simply means more returns to come for us true believers.