U.S. Equities: Does A Long/Strong Bull Market Spell Danger?

Stock market rallies can last a surprisingly long time without encountering a significant correction.

For instance, there was a three-and-a-half year period in the 1960s, a three-year stint in the 1980s, a seven-year span in the 1990s and a four-and-a-half year interval in the 2000s, when the S&P 500 continued to rally without a 10% correction. So far, it has been 116 weeks since the market had its last 10% downdraft, so the recent market performance is by no means unprecedented.


A recent BCA special report investigated whether the timing of bear markets has any relation to the strength and duration of the preceding bull phase (note that in this research the equity bear market is defined as an index decline of 15% or more that persists for at least three months). We have not been able to find any consistent pattern between the strength and duration of bull markets and the timing of subsequent price declines.

The above charts do not show any predictable relationships between bull and bear market cycles – if anything, the correlation is a negative one. The median gain for the 14 bull markets was 91.6%. However, of the seven cycles that recorded an above-median gain, only two recorded subsequent bear market declines above the median drop of 24.6%. In other words, above-median gains more often than not were followed by below-median declines. There also tended to be a negative correlation with regard to cycle duration: the longer the bull market, typically the shorter the subsequent bear phase. Thus, it is hard to claim that bear markets occur because of some kind of exhaustion.

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