A Bigger Picture Look At The Bull Market

On Friday, the S&P 500, Dow Jones Industrial Average, and Nasdaq all closed at new all-time highs. The Dow closed above 19,000 for the first time ever three weeks ago; now it is a strong up day or two away from potentially closing above 20,000. It is easy to get caught up in the huge move we’ve seen out of equities since the election, but it is just as important to remember what things were like heading into this move.

We noted many times over the summer how historically tight the trading range was for equities at that time. From the tightest two-year trading range in more than twenty years, to the tightest 30-day range in 50 years, to the least-volatile two-week stretch in 21 years – it all added up to expectations of a big move later this year. In fact, in late July we summed up the lack of movement like this: “Tight ranges don’t stay that way forever, just as volatile times don’t stay volatile forever. History would suggest that tight ranges like we are in now tend to resolve higher.”

It is now safe to say that has played out very nicely, but how much more could be left in the bull’s tank? As we laid out in Irrational Exuberance Part Two last week, the equity bull market is alive and well according to our methodology based on valuations, fundamentals, and technicals. Let’s take a much bigger picture look at things now. As Ryan Detrick, Senior Market Strategist, noted, “It is easy to get caught up in the near-term volatility of equity markets, but taking a bigger picture look at things sometimes helps to clear up a blurry picture. Doing this shows a nice breakout from a 13-year consolidation and greatly increases the odds of potential strength going forward into at least 2017, if not much further.”

As the chart below shows, the S&P 500 has previously moved from very long periods of sideways action, to a decade-or-longer bull market. After consolidating for 13 years from 2000 to 2013, the current bull market that dates from the breakout to new all-time highs is only three years old. If history repeats once again, this bull market could have much further to run.

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