Why this 10-year bull market is actually one year old: Morning Brief

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Rethink math

According to people who uncompromisingly adhere to the rules of the T, the S&P 500 (^ GSPC) has not seen a bear market since the financial crisis.

Since its low in March 2009, the market has made numerous "corrections" of more than 10% in order to reach new highs on Thursday. However, if you reference the market based on the closing prices, the S&P still has to fall into a bear market, which is traditionally defined as a 20% decline from a high closing price to a low closing price. (A year ago, the S&P barely missed the course, falling 19.8% from its closing high on September 20 (2,930.75) to its closing high on December 24 (2,351.10).)

That means if you look at the intraday prices, the story changes. The S&P fell 20.0% from its intraday high of September 21, 2018 from 2940.91 to its intraday low of December 24, 2018 from 2351.1. The S&P fell 21.5% from its May 2, 2011 high of 1,370.58 to its October 4, 2011 low of 1,074.77.

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And frankly, is a 19% drop really different from a 20% drop?

"The S & P 500 has had three times 20% corrections in the past 10 years," writes J.C. Parets. "The crazies will tell you that it doesn't count (LAUGH) because one of them only fell 19% or something stupid. I mean it, they actually do. And worse, people listen."

Parets will also remind you that "20% is a completely arbitrary number."

In addition, this whole discussion seems to only occur in connection with the "old" bull market. But as we know, bull markets don't die of age. Because whether you call it a one-year bull market or a ten-year bull market, the underlying fundamentals are still the same. The earnings are the same. The economic conditions are the same. It’s all the same.

Jim Paulsen from the Leuthold Group recently said in a message to customers that the correction at the end of 2018 was actually a bear market. In his note, Paulsen shared the following graphic to show how this year's rally after the bear is going against history.

"After last year's correction, this year's US stock market rally is almost the same as the post-war average bull run in the first year," wrote Paulsen.

“As shown, this year it got a little hotter in some places and sometimes a little colder. Overall, the stock market seems to be ending its first year in 2019 with a very similar performance for the average "first year" after a bear market low, "he added.

Historical evidence (see here, here and here) shows that it is not crazy to believe that the stock can go much higher from here.

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