🎂 Happy birthday, bull market

Hey hey, happy Monday! 

We’re celebrating two birthdays in this week’s edition of OptimistiCallie.

First, my own – I turned 34 last Tuesday, and no, I don’t want to hear your opinion on if I’m in my mid-30s yet (I reject this notion!). The past six days have been full of good food, good friends and a bevy of celebratory desserts.

More importantly, though, yesterday was technically the third birthday of this bull market (or the long streak of price gains the S&P 500 has been locked in since October 2022). And ironically, everybody seems to be talking about how the bull is totally over.

Today, a 4-minute read on why you can argue all you want about the durability of this bull, but you shouldn’t bet against it.

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There’s something particularly rude about talking about someone’s mortality on their birthday.

Hey Phil, happy birthday! Have a slice of cake, celebrate yourself. Oh, btw, how does it feel to be one year closer to dying?

None of us would ever say that unless we were intentionally trying to ruin the friendship. Or at the very least, have cake thrown in our faces.

But on this sacred birthday of the stock rally that started three years ago, we can’t stop talking about how it may be totally over.

Whether it happens from AI froth, or an impossible job market, or a redux of Liberation Day (okay, fair, the S&P 500 did just fall 2.5% in a day on the back of new tariff threats), we all have our reasons neatly prepared for the birthday bull to face its imminent demise.

I have my thoughts on the health of this rally, too. But let’s put all that aside for a moment.

On yet another anniversary of rising stock prices, I want you to understand why you can argue all you want – but you absolutely cannot bet against a charging bull.

First of all, WTH is a bull market exactly?

It’s Wall Street lingo for a strong and consistent rally in a market or security.

Technically, it’s when a stock rallies 20% or more from a 52-week low. The opposite? A bear market, when a stock falls 20% or more from a 52-week high.

Bull markets are homeostasis on Wall Street, at least for many of the major benchmarks. Since 1928 (as far back as my data goes), the S&P 500 – the index of America’s largest publicly traded stocks – has been in a bull market 76% of the time.

Yet, for how prevalent bull markets are, people are obsessed with speculating about their doom.

They always think the stock market is “due” for a crash, almost like the bull will die with time, and the grim reaper is sitting at the door of the nursing home waiting for its next victim. Or they point to whatever obstacle sits on the horizon and warn that this could be “the big one”. Over and over again.

Here’s the thing, though: bull markets last a lot longer than people think.

Since 1932, the average bull has lasted for 4.4 years. That’s just the average, though. Some bulls barely made it to year two, while others have lasted longer than a decade.

Bull markets are rarely a straight line higher, either. They frequently tempt fate, sliding just enough to roil your emotions without reaching that 20% drawdown. Since 1950, each bull market has experienced an average of two drops of 10-19.99%.

These fakeouts can be dangerous. Selloffs that force a swath of investors to sell and curl up in a ball, only for the losses to disappear within a matter of weeks or months. And if you sell, you then have to convince yourself to buy back in. It’s harder than it sounds.

Even if a bull market is nearing its demise, you often can’t predict to the day when prices will turn. Every day matters, too. In the last 12 months of every bull since 1932, the S&P 500 has climbed an average of 30%. People lose touch with reality and throw money into corners of the market you wouldn’t believe – and yet, Wall Street plays along longer than you can imagine.

Bull markets do eventually end. What brings them down is often a mix of circumstances and expectations – a similar recipe to how they start in the first place.

Take the current bull. Three years (and a day) ago, the S&P 500 closed at 3,577, a two-year low and 25% below its 52-week high. At that moment, scorchingly high inflation and a British budget crisis led to the most despondent market mood since the global financial crisis.

Since then, the index has soared 83% higher.

Right when people thought we were so over – we were actually sooooo back.

This is the other tricky part about fighting a bull. Bulls are born and killed from rapid mood swings plus a turn in the economy and corporate profits. Often, a bull dies when we’re fat, happy and blind to risk. We’re not actively worrying about what’s on the horizon.

That crisis often breaks the economy, leading to a recession. Job loss, business failures and even lower stock prices. It’s an all-consuming affair.

So when you’re debating the possibility of a stock market crash, this is what you’re ultimately calling for. It’s a high bar – one that people underestimate all the time.

That brings us to today. Sure, there’s a laundry list of obstacles to worry about. Some I’m sweating (and have been vocal about).

Besides, people forget that this is a bull that thrives on fear and restraint. It started while the Federal Reserve (hello, interest rate superheroes) was hiking rates, or actively trying to slow down the economy and dampen inflation. It’s moved higher on the backs of just a few stocks, with the usual suspects – like small caps – lagging for much of the past few years. There’s a graveyard of people who have tried to call for the end of this bull, yet it just keeps pushing forward.

Ultimately, nobody knows how this bull will die. And as it usually goes, the risk that kills this bull probably won’t be one we see coming. If the death knell is unexpected, you naturally can’t time around it unless you get lucky.

Here’s where the danger lies: if you sell out of stocks because you’re convinced the market can’t go any higher, the consequences are expensive. Like 20% in gains per year expensive.

You can’t afford to miss a bull market…and the best investors know this well.

Instead of selling out and hiding in cash, they set targets to keep their portfolio in balance if the mood overheats. They stay cognizant of what economic signals are telling us. They pad their portfolios with cushions like fixed income and alternatives so they know a bear market won’t wipe them out.

And they definitely don’t talk about death on a birthday. C’mon now, what a faux pas.

Thanks for reading!

Callie

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