When bull markets get spooky

E*TRADE Securities2


We’re on the cusp of what may turn out to be the most prolific bull run in history. According to research firm Leuthold Group, the S&P 500® only needs to climb about another 6.4% to make this bull stand taller than all others.1 But has it really been one big party for investors since the tide turned in March 2009? Eh, not exactly.

Eight-plus years after this bull started running, we walk through some of this market’s hairier moments and how investors may want to view instances when market events seem to conspire against them. 

Periodic dips

“This bull run’s narrative does not fit neatly into a box,” according to Vice President of Investment Strategy Mike Loewengart. “But that’s normal. Pullbacks and corrections are part of a healthy bull market.”

The S&P 500’s trajectory since March 2009 may be (much) higher overall, but market observers can point to several periods during that time when the index dipped and the market tested investors’ mettle:

  • 4/23/2010–7/2/2010: The S&P declined 15.03%2 amid questions about the potential effects of financial reform, namely the Dodd-Frank legislation, as well as the eurozone debt crisis and central bank policy. 
  • 4/29/2011–10/3/2011: The index dropped 18.45%2 among concerns about the downgrade of the US’ credit rating, economic instability in Europe, as well as the earthquake and nuclear disaster in Japan.
  • 7/20/2015–2/11/2016: The S&P fell 12.89%2 on the economic slowdown and currency devaluation in China, Greece’s solvency and its effects on the eurozone, a stronger US dollar, and uncertainty about the Federal Reserve's monetary policy, not to mention Brexit.
S&P 500® since 2009

Source: OptionsHouse by E*TRADE

Taking a break?

While each pullback has its lessons, the latter period detailed above is particularly noteworthy. According to a Bloomberg report, 3 it may have tested the limits of this bull market, in some ways calling its length into question. If a 20% swing in either direction indicates a bull or bear market, which many use as their guardrails, peak-to-trough numbers from mid-2015 to early 2016 show that the market may have actually felt quite bearish.

The S&P 500 return is calculated using a market value weighted average of the index’s underlying constituents. By that measure, the index dropped roughly 15% during that period. But when considering that the biggest stocks drive index returns, a dissection to the median performances of the underlying constituents indicates a larger 25% decline.

Also, 80% of S&P 500 stocks fell below their 200-day moving average at some point during this period. When assessing trends, such long-term moving averages can be telling, as a stock breaching a major moving average could be a sign that a trend is reversing. 

The big questions

Still, the market has been remarkably resilient. Whether it’s been running this whole time, or taken a break or two, it has continued to hit new highs. But how long can the upward trajectory continue? Perhaps a juicier question is how will it end? Will it be a slow descent or come by way of a market shock?

Sure, pundits note that risks abound, but many at the same time point to sound fundamentals and steady economic growth, which could add more fuel to this market’s fire.

And investors don’t exactly seem spooked this Halloween season. The CBOE Volatility Index®, also known as the “Fear Gauge,” remains historically low, recently closing below its record low of 9.31 set in December 1993.4

Rule of thumb

This week, many investors may have felt a residual shiver from the 30-year anniversary of Black Monday. Major market events are indelible—and that’s one of them. But such up and down events are all part of the investing deal. Even amid this bull market’s seemingly endless string of highs, investors have probably had their nerves rattled a time or two, especially coming off the financial crisis.

“It’s in those moments, though, that the case for diversification across assets strengthens, and can keep investors from frantically running toward the exit,” according to Loewengart. As part of that diversification, determining a comfortable amount of risk that reflects investors’ investment goals can help put those anxious moments in perspective.


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1. Imbert, Fred. “This bull market needs to go up just a bit more to be the ‘GOAT’,” CNBC, 12 Oct. 2017. https://www.cnbc.com/2017/10/12/this-bull-market-needs-to-go-up-just-a-bit-more-to-be-the-goat.html

2. According to Morningstar, http://quotes.morningstar.com/indexquote/quote.html?t=SPX

3. Ritholtz, Barry. “There’s Nothing Old About This Bull Market,” Bloomberg, 22 Sep. 2017. https://www.bloomberg.com/view/articles/2017-09-22/there-s-nothing-old-about-this-bull-market

4. According to http://www.cboe.com/delayedquote/advanced-charts?ticker=VIX. The VIX® is calculated by Chicago Board Options Exchange (CBOE) and generally measures expected volatility of the U.S. market in the next 30 days. The higher the number, the more bearish the market is in general. The VIX® is used to calculate the put/call ratio.