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.