US Equities: Secular Bull Market?
Charter Trust Company
By Mark Ungewitter
August 23, 2013
Have US equities entered a new secular-bull market? Or is the recent “breakout” to all-time highs just a “fakeout,” similar to those which have occurred during prior bear markets?
The attached chart shows that the rally since 2009 has been very powerful, lifting the 10-year moving average to new highs by late 2011. This is first-order evidence of a new secular trend.
On the other hand, bear markets have commonly featured false breakouts to all-time highs. And based on the 10-year moving average, the modern bear market has been the mildest on record. This suggests that further bear-market action may be required to establish the “generational disgust” which seems necessary to launch a secular bull market.
Perhaps both views have merit. It’s quite possible that while the market has entered a new secular bull phase, it still faces a normal correction to the vicinity of the 10-year moving average. Such behavior was seen in the late 1940’s and the late 1970’s, before true lift-off took place.
Bottom line? The Dow’s 10-year moving average – currently near 11,500 – provides one measure of risk in today’s uncertain environment. Though impossible to predict, a reversion to (or through) this long-term average would be entirely normal from a behavioral perspective.