It's the longest running bull market, depending on who you ask

  • There is no universal agreement on what constitutes a bull or bear market. And even under the standard definition, it's a stretch to say we are in the longest-running bull market.
  • Some argue that a better way is to look at rallies to see whether they surpass the old highs. Under this measurement, the bull market really began in March 2013.
  • Bull markets tend to last three times longer than bear markets.
Brendan McDermid | Reuters

Many are saying this is the longest running bull market. By most definitions, it began on March 9, 2009 — when the S&P closed at 676, the bear market low. The S&P 500 is up more than 300 percent since then.

On August 22, the bull market turns 3,453 days old, putting it one day beyond the bull market that ran from October 1990 and ended with the bursting of the tech bubble in March 2000.

Break out the champagne glasses. This is the longest running bull market of all time, and we are living in it. Isn't it great to be alive?

A word of caution, though. There are two big reasons not to get worked up over the breathless headlines. First, there is no universal agreement on what constitutes a bull or bear market. And second, even under the standard definition, it's a stretch to say we are in the longest-running bull market.

20 percent rule

Let's talk first about what a bull market is. The standard definition is the 20 percent rule. A bear market is underway when the S&P falls 20 percent from its bull-market high, and a bull market begins once it rises 20 percent from its bear-market low.

First, who decided it was 20 percent and what is so magic about that level? The short answer: no one knows exactly, but veteran market watcher Louise Yamada, who for many years was technical analyst at Smith Barney, told me that the idea goes back to her predecessor, Alan Shaw, who was one of the founders of technical analysis. Louise told me that Shaw would toss around the terms "bear market" and "correction" but to help traders understand the magnitude of the event he was talking about, he told them that when he said "correction", they should think of a decline of around 10, and a "bear market" would be a drop of around 20 percent or more.

Since Shaw began his career in the late 1950s and was a fixture on Wall Street for decades, this likely would have been in the 1970s, so the tradition goes back a long way.

There's plenty of people who dismiss the 20 percent rule, including the folks at the Stock Trader's Almanac, who nonetheless agree that March 9, 2009, was important. "It marked the end of a long severe decline in stock prices, the end of the bear and the beginning of the end of the Great Recession, which the National Bureau of Economic Research (NBER) determined ended in June 2009," said Jeffrey Hirsch of the Stock Trader's Almanac.

OK, so there's nothing magic about 20 percent. But here's a more important point. There are plenty of other ways to measure a bull or bear market. Some argue that a better way is to look at rallies to see whether they surpass the old highs. Under this measurement, the bull market really began in March 2013, when it finally passed the pre-crisis high set in October 2007.

Alternative definition

At the Stock Trader's Almanac, Hirsch uses an alternative definition developed by Ned Davis Research, which holds that a bull market begins with a 30 percent rise in the Dow Jones Industrial Average after 50 calendar days or a 13 percent rise after 155 calendar days.

Under this definition, Hirsch notes that the U.S. market entered two bear markets this decade, one in 2011 during the European debt crisis and another in 2015 during the oil crisis.

Here's another point that bothers me about this celebration. We have been down 20 percent. From May to October 2011, the S&P 500 fell 21.6 percent based on intraday prices. It was the height of the European debt crisis, with an additional shock on August 5, 2011, when Standard & Poor's lowered the credit rating of the United States from AAA to AA+.

But bulls say this 21.6 percent drop in intraday prices doesn't count because the S&P 500 only fell 19.4 percent based on closing prices.

Based on intraday prices, the bull run ended in October 2011.

Paul Hickey, who analyzes market trends at Bespoke Investing, emailed me to explain why intraday prices don't count. "The reason we use closing prices is because there is no historical intraday data going back further, so there's no ability to make a true apples-to-apples comparison." Hickey tells me most services only started tracking intraday data in the early 1980s.

For the average investor, the most important takeaway, in my opinion, is that bull markets last a lot longer than bear markets. Hickey notes that the average bull market since 1927 has lasted 981 calendar days, while the average bear market has lasted 296 days.

Bulls last longer

In other words, bull markets tend to last three times longer than bear markets.

For a bull market to end, the stock market would have to decline by 20 percent or more. The Fed and recessions are the two killers of bull markets. Stocks will typically move down well before a recession starts, but market watcher Tom McClellan points out that the Fed can often kill a bull market by getting too aggressive with interest rates.

For example, that would happen if it raises the fed funds target, now at 1.75-2.00 percent, above the 2-year yield, currently 2.6 percent.

"As long as the Fed doesn't get stupid, the bull market can continue, and suffer ordinary garden variety corrections along the way," McClellan told CNBC.