A market that rises 20% (usually after a drop of 20% and before a second drop of 20%) is called a bull market after the way that a bull thrusts it head Up in the air. A bear, on the other hand, swipes it’s paw Down. So, a market that drops 20% from it’s high is call a bear market.
On March 12, 2020, the S&P 500 closed down more than 20% from it’s recent high, officially ending the longest bull market in U.S. history. The bull market ran for almost 11 years, from March 9th, 2009 until it’s high on February 19th, 2020. Over that time, the market earned investors a robust 529% return (including dividends).
Why did it last so long? There are many factors. First, the Federal Reserve kept interest rates at extremely low levels throughout the time period. Keeping interest rates low encouraged people to take extra risk (invest in stocks instead of bonds). Another compounding factor was company buybacks. With interest rates so low, companies were encouraged to borrow money. A lot of companies used that money to buy back their own shares. With less shares available to the public, it put pressure on stock prices to rise. Don’t forget the Tax Cuts and Jobs Act (signed in 2017). It reduced corporate tax rates. Lower taxes allow more revenues to be booked as profit, increasing company earnings. As earnings increased, it gave more impetus for stocks to continue to climb.
So how long until the next bull market? We are already there. The S&P 500 bottomed on March 23rd, 2020 at 2191. Since then, the market has risen more than 20% putting us back into a bull market. The odds are that this bull market will not be as good as the last. The only other three that come close were from 1949 to 1956 (226% gain), 1982 to 1987 (229% gain) and 1990 to 2000 (417% gain). Great bull markets are a rare breed and we were lucky enough to be able to ride this one.