Bull Market Beset by Too Many Misconceptions
What have we learned in the one year since equities crashed?
Bloomberg, March 28, 2021
Last week, I mentioned my frustration at some of the media coverage of the one year market bottom anniversary. That annoyance became a full column, discussing five conceptual errors people seem to have about this current bull market:
• 12 versus 13 months: Why is the time it takes the earth to complete one orbit around the sun relevant to stocks? Between March 23, 2020, and March 23, 2021, S&P 500 Index gained 74.8%. If we add a single month to that time period, the gains fall to ~15%.
• Recovery: When the price of an asset falls 34%, it requires about a 52% move higher to get back to breakeven.
• Clichés: Why is a 20% drop designated a bear market? Has anyone tested the significance of this number beyond the simple fact we have 20 fingers and toes?
• Externalities: Don’t assume the 2020 pandemic — or any non-economic externality — ended the bull market that began in 2013.
• Rotating Buyers/Sellers: Buyers & sellers are not monolithic blocks. A different points in the cycle, differing buyers and sellers emerge.
• Momentum: Why are Traders attracted to rising stock prices? They recognize price is a more reliable tell than the surrounding narratives.
• Bull markets do not begin from bear market lows. The 1982 -2000 bull market did not start in 1974 any more than the current bull began in March 2009.
• Cyclical versus Secular: No, this is not the 2nd year of a new bull market. Counter trend rallies and sell offs do not mark the end of longer-term secular trends. Look at longer-term forces underlying secular bull markets.
• Can we all really spot a a bubble in real time? I tend to doubt that.
If this is the sort of stuff that interests you, the full column fleshes out these details.
I originally published this at Bloomberg on Bloomberg, March 28, 2021. All of my Bloomberg columns can be found here and here.