The Bull's Fourth Year

Friday, October 07, 2005 | 11:59 AM

Interesting historical comparison, from S&P via Barrons (long excerpt):

The Bull's Fourth Year
Here's how sectors within the S&P 500
performed in the fourth year of an
ascending stock market, since 1960.
Sector Average %
Consumer Discretionary 22
Consumer Staples 26
Energy 6
Financial 22
Health Care 31
Industrials 19
Information Technology 28
Materials 14
Telecommunications 9
Utilities 4
Source: Standard & Poor's

"Bull markets -- defined by S&P as periods with a 20% or more advance from a prior bear-market low -- have lasted more than four and a half years on average since 1942, according to Sam Stovall, chief market strategist at S&P.

In those 11 bull-market scenarios, the first year was best, with average returns of 38%. In the second year, returns were about 12% This bull market has almost mirrored those returns. The third year is likely to produce market returns of about 8%, double the historic average, Stovall says.

The current bull market is somewhat parallel to the bull market that began in October 1974, Stovall says. That run and this one came after a roughly 48% market decline. And, in an eerily familiar scenario, citizens faced an increasingly expensive and unpopular war, rising energy prices and the threat of stagnating economic growth.

But there was soaring inflation and short-term rates were high and rising. Still, in that fourth year, the S&P 500 eked out a 7% return, according to S&P."

Investors, however, may do better if they look to specific sectors rather than buying the market as a whole.

"Stock outperformance in the fourth year of a bull market comes in defensive areas -- consumer staples, health care and technology," Stovall says. "Whether times are good or bad, you still eat, smoke and drink -- and if you overdo it, you go to the doctor."

Health-care stocks have been up 31% and information technology stocks increased 28%, on average, in the fourth year of a bull market, according to S&P.

Consumer staples, a sector which includes businesses less sensitive to economic cycles, such as the producers and retailers of food, beverages and personal products, have been up 26% in the fourth year.

Consumer discretionary stocks, more sensitive to economic cycles, also have produced decent returns in the fourth year -- 22% on average -- but with less frequency than consumer staples, according to S&P. The segment includes makers of cars, refrigerators and clothing as well as hotel and restaurant chains."



Apologies for beating a dead horse, but -- if you do not have an online subscription to the WSJ yet -- Barron's is included -- considering the cost, you are missing alot of good stuff.


UPDATE October 7, 2005 2:13pm

I (obviously) don't agree with Stovall's assessment, but he is the chief market strategist at S&P, and has some decent insight into his firm's index.

Here's a pair of charts looking at the two periods:

2000-05 SPX
click for larger chart


1972-76 SPX

click for larger chart


Give Stovall his props -- these two charts have more than a passing resemblance . . .



Will the Bull Catch a Second Wind?
Barron's WEEKDAY TRADER, WEDNESDAY, OCTOBER 5, 2005 6:45 p.m.   

Market Resistance Held, Will Support?
WEDNESDAY, OCTOBER 5, 2005 4:05 p.m.

Friday, October 07, 2005 | 11:59 AM | Permalink | Comments (5) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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re. fourth year bull market, 1977-1978 and Stovel's figures....

Oct 1 1974 SPX = 63.54, CPI = 51.4
Oct 1 1977 SPX = 96.53, CPI = 61.9
Oct 1 1978 SPX = 102.54, CPI = 67.4

Change from 1/1/77 to 1/1/78 of nominal SPX = +6.2%
Change from Octo 77 to Oct 78 of CPI = 8.8%
Real return of SPX from Oct 77 to Oct 78 = negative

Am I missing something?

I hate it when analysts use nominal SPX and forget about inflation....especially when talking about the 1970s.

Posted by: john | Oct 7, 2005 1:48:32 PM

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