According to Merriam-Webster, Rhyme (noun) is defined: one of two or more words or phrases that end up in the same sounds.
Applying this concept to the market, like the words or phrases of a rhyme, the pathways a market takes to get where it is going may be different, the end results may look the same. This idea of “rhyming markets” comes to me via Craig Johnson, Managing Director and Senior Technical Strategist, Piper Jaffray. Johnson articulated this idea in an August 9, 2014 MarketWatch story (“This market expert sees big upside for stock”).
I have raised elements of Craig’s argument in past kortsession posts (session-8 and session-20 to name two). It has been a theme of mine: and, as I have said before, I love it when people agree with me!
Here is a sampling from Howard Gold’s MarketWatch article on Johnson’s long-term market views:
If Johnson is right, stocks will rally for a long time. He thinks we’re in the kind of secular (extreme long-term) bull market we saw in both the 1950s and the 1980s. Each of those runs lasted much longer than a decade.
“The secular bull market began in March of 2009 and was finally confirmed when we went through the 2000 and 2007 highs,” Johnson explained.
That “confirmation” occurred in March 2013, when the S&P 500 broke above 1550, its previous all-time peak.
“When you break out of big bases, the market accelerates,” he explained, and indeed, the S&P has gained as much as 28% since hitting that magic number. Comparing that with 1952 and 1982, when the market also surpassed its previous high (in price only, not including dividends), Johnson said, “If history does rhyme, [this bull market] would last 10 years from 2013.”
“Investors made five times their money” after 1952 and 15 times their money from 1982 to 2000, he said.
As a footnote to Johnson’s remarks, I think it might be constructive to consider what a “long base” looks like. The 1929 Crash built an extraordinarily long base, 23 years (from peak in 1929 381.71 to a 1932 low of 41.22, the Dow Industrial broke out definitively to new all-time highs in 1952). The 1966 bear took 16 years to break out definitively to new all-time highs. The 2000 bear built a 13-year base before breaking out to new all-time highs in 2013. The reason the ’29 market based for so long was, in large part, due non-response by the Federal Government (zero fiscal stimulus until 4 years after the crisis began) and a faulty Fed response to the crisis (tightening credit, instead of loosening it). 2008 could have turned out the same way without enlightened leadership on the part of both the Bush and Obama administrations, and the Bernanke Fed. We were very lucky.
CAVEAT!
It is important to recognize the fact that during both these runs there were significant, scary corrections; in particular 1987, when the Dow Jones Industrial Average plunged 36% inside of three months. Those who stayed the course saw almost a seven-fold increase to the January 14, 2000 peak of 11,612.53.
What’s your take on this thought process?
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