Unloved Bull Markets. Craig Callahan
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in a horrible [economic] setting.
From July 13, 2009, through April 30, 2010, as seen in Figure Intro.1, the S&P 1500 moved higher gaining 35.32% and consumer discretionary was the best sector, gaining 56.98%. Coach was acquired by Tapestry so we can't find a price for it, but Tapestry gained 76.23% over that period. In Chapter 2, we will see that consumer discretionary was the second best performing sector over the eleven-year bull market.
Figure Intro.1 S&P 1500 Index, 12/31/2008–4/30/2010
That interview simply shows that one analyst was incorrectly bearish, but the first chapter will offer evidence that many investors did not participate in the bull market, as seen by investors redeeming from equity mutual funds rather than adding to positions to profit from the long-term market advance. Also, as evidence this bull market was “unloved,” investor sentiment was much more negative than in the previous two multiyear bull markets.
Those who have missed out try discrediting the bull market stating that it wasn't sensible or was due to gimmicks such as excessively easy monetary policy, bailouts, or corporate buybacks. This book will counter justifications by investors and advisors that this bull market wasn't sensible. The second chapter will show that the long bull market was sensible, had some behaviors and traits similar to previous bull markets, and, therefore, was fairly typical. In the subsequent chapters, the book will examine situations and conditions that bothered investors and could have caused investors to sell or, at least, sit on the sidelines. Looking back, this “wall of worry” was a darn big wall and so was the proportionate climb for stock prices. Let's see if there were lessons to be learned.
The great bull market ended February 19, 2020, just two weeks short of its eleventh birthday. Then the market experienced a twenty-three-trading-day crash, from February 19 to March 23. We could argue that twenty-three days does not qualify as a bear market and that the dip was just an interruption to the multiyear bull market. Because the S&P 1500 Index dropped 34.5% over that period, we would probably lose that argument because a drop of 20% or more is a very popular, although arbitrary, definition of a bear market.
If we concede that the eleven-year bull market ended, then the rally off the March 23, 2020, low must be a new bull market and a spectacular one at that. The NASDAQ Index got back to a new all-time high in fifty-three trading days. The S&P 500 Index took 103 trading days. If the eleven-year bull market was “unloved,” its sequel was downright despised, as shown by the bearish, skeptical, negative commentary that dominated print and broadcast media.
As in 2009, I was interviewed just before and after the bottom and provided a bullish outlook. In an interview with nationally syndicated financial columnist Chuck Jaffe that aired on his podcast “Money Life” on March 20, 2020, one trading day before the bottom, I stated, “Best bargains we have ever seen.” Mr. Jaffe then asked, “When do you buy?” I responded, “There are all of the supportive conditions typical of buying opportunities. I think that it is a matter of days or weeks. We're close.” A week and a half later, on CNBC TV “The Exchange,” I declared, “We do believe a bottom is forming and it seems like all the bad news is priced in.”
The two recent bull markets that began March 2009 and March 2020 seemed obvious to us but not to most investors.
Chapter 1 “Unloved” Bull Markets
Along with many other observers, Tom Keene of Bloomberg Surveillance Radio called the multiyear bull market, from March 2009 to February 2020, “unloved.” We agree and believe that, for a variety of reasons, many investors chose not to participate in the market and missed out on a terrific opportunity to increase wealth. In previous bull markets, investors gained confidence and faith as the market advanced. Not this one. Unlike in previous bull markets, investors neither gained confidence nor faith in the workings of the market. If anything, the advance only encouraged the opposite: skepticism and doubt.
The Investment Company Institute (ICI) reports mutual fund data in its annual Investment Company Fact Book regarding annual inflows, outflows, and net flows for equity mutual funds beginning in 1984. Figure 1.1 shows annual net flows, which is inflows (sales) minus outflows (redemptions) in millions of dollars in gray scaled on the right. The S&P 500 Index is in black with quarterly observations scaled on the left.
Although the bull market in the early 1980s began in August 1982, equity fund flow data begin in 1984. Nevertheless, we see increasing positive flows in 1984, 1985, 1986, and 1987 as the S&P 500 moved higher. The market advance attracted investors, as they apparently gained confidence. There were net outflows in 1988 as investors moved away from equities after the market crash of October 1987. As it happens investors were captivated by the crash in their rearview mirrors and couldn't bear to face the bull market ahead.
Figure 1.1 Equity Fund Net Flows and S&P 500 Index, 1984–2019
As the next bull market started, equity mutual fund net flows turned positive and grew accordingly with the market advance. The graph shows how the rising market enticed investors to buy equity mutual funds. In the end of that bull market, net flows hit their peak concurrent with the high of the S&P 500 Index. During the market decline following the “tech bubble” of early 2000, investors greatly