Mass psychology

Jan David Meyer, CFA, recently put today’s bull market into a useful historical perspective. Since 1900, S&P 500 bull markets have lasted around four years on average and delivered gains of roughly 135%. At 3.8 years and close to +110%, the current bull market is therefore approaching its historical average duration.

Does that mean the clock is ticking? A Random Walk Down Wall Street comes to mind: 125 years of market history may give us interesting averages, but they do not provide a clock telling us when a bull market must end. Its age alone tells us relatively little. Economic and monetary conditions, corporate fundamentals and, importantly, valuations will ultimately matter far more.

Where history does matter, however, is mass psychology. Rising markets create a wealth effect; the wealth effect feeds FOMO; FOMO attracts more investors; and eventually complacency sets in. The longer markets rise, the easier it becomes to believe that they simply cannot fall.

So while we are not particularly concerned by the age of the bull market, this is certainly no time to fall asleep at the wheel.