Santoli: Battle-scarred bull market turns 7

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

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"Mature" can mean capable of handling life's challenges. It can also be a patronizing euphemism for just plain "old."

As we mark the seventh anniversary of the start of the stock-market advance that emerged from the global financial crisis, it qualifies as a mature bull market in both senses of the word.

It's hard to argue the old part. Only two bull markets since 1928 have lasted longer than this one's 84 months, according to S&P Dow Jones Indices' Howard Silverblatt: The nearly decade-long flight from late 1990 to early 2000, and the postwar march from 1949 to 1956.

Of course, like "recession" or "first marriage," a "bull market" is only declared and dated in retrospect. Defined as a 20 percent rise that follows a prior 20 percent loss and ends in another 20 percent decline, the end date of this bull market will be set at its highest point before such a 20 percent drop is registered.

The S&P 500 reached 1,810 midday Feb. 11 — 15.1 percent below the May 2015 high. If the index falls to 1,707 before eclipsing that 2015 peak, then the end date to the bull market will be reset by Silverblatt's team to May 2015.


For months now, many professional observers and traders have been treating this as a bear market in all but official designation, pointing to the carnage in the majority of stocks well below the 20 percent loss threshold and the downward turn in market trackers such as the 200-day average index. And, of course, the niggling technicalities can ultimately seem pointless both for the long-term investor and the tactical trader.

But unless and until the S&P 500 itself loses a fifth of its value, a bear market isn't formally in the books, and we can evaluate the present environment as a bull market, and indeed, quite a battle-scarred one.

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The recovery began on March 9, 2009, with what became known as the "Haines Bottom," as the late CNBC anchor Mark Haines watched the S&P 500 plunge to 666 and mused on the air that the climactic low had likely been reached.

In the subsequent seven years, only about 2½ — from mid-2012 to late 2014 — were an easy upward glide. Before then and after, it has been a jarring trip, shadowed by fresh memories of systemic meltdown and animated by untested support efforts by central banks.

On the way to its seventh birthday, this market has sustained three separate setbacks of at least 15 percent: one each in 2010 and 2011, and just recently with the plunge to the February lows. Indeed, the index was only a few decimal points from a 20 percent loss in the 2011 panic, which would have meant a new bull market would have then begun, and would today be less than 5½ years old.

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A quick survey contrasting the economic and market conditions of now versus seven years ago illustrates plenty of welcome improvement, but also would give many the impression of a market's progress having culminated, or nearly so.

The unemployment rate has fallen to 4.9 percent from 8.7 percent. Real U.S. GDP has climbed to $16.4 trillion from $14.5 trillion. The yield on the main junk bond index, while up sharply from 2014 lows, is just under 9 percent today compared with nearly 21 percent in the panic of March 2009.

In March 2009, the prior 12 months' S&P 500 operating earnings per share were $43, versus $104 today. That's a gain of 142 percent. The price-earnings multiple has gone from 15.7 to a current 19.2, using these trailing profit figures. And the stock market's total value as a proportion of GDP has soared to 115 percent from 61 percent in early '09.

For as aged and resilient as this bull market has been, though, it has not been especially impressive in terms of its absolute level of appreciation. Through Friday, it was up 195 percent, not including dividends, which is only the fifth-best gain among bull markets dating to 1928.

For the Dow Jones industrial average and going back to 1900, the Leuthold Group shows this is only the third time a bull market has made it to seven years (the Dow fell 20 percent to divide the long 1990s advance). And its 158 percent return this time is by far the least rewarding of the previous, similarly long ascents through history, according to Leuthold.

In many respects, the climb has been grudging and joyless, pushed ahead by ultra-low official interest rates and pulled along by corporate borrowing, stock buybacks and the zealous defense of company profit margins. The closest thing this bull market has had to a rallying cry, voiced by reluctant equity buyers, has been "There Is No Alternative."

And yet, largely because stocks never got as cheap in 2009 as in earlier washed-out bear-market bottoms, equities have entered the valuation zone that typically prevails when a bull market peaks. Using a five-year normalized earnings level to smooth out the trend, stocks got to 21 times earnings at the May peak and are still around 20 now — almost exactly the median level of market peaks over the past 60 years, according to Leuthold.



This leaves us in the same hazy conditions that have enshrouded investors for half a year, in the disputed territory between bull and bear market. The trend has turned hostile and most equity markets around the world have entered or undergone clear bear markets.The Federal Reserve is trying to tighten its monetary policy when the corporate-profit and credit cycles have soured — a rarity through history.

And yet many cyclical sectors have already endured massive downward adjustments while stocks' dividend yields today compare quite favorably with those of government and high-grade corporate bonds.

The bottom line seems to be: This mature bull market owes investors nothing more, but that doesn't mean it won't find ways to show a bit more generosity before it's through.

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