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Dueling Data Generates a “Yeah, But” Market Environment

A recent article in the financial press suggested that bull markets should be measured by what happened after recouping what was lost in the prior bear market, rather than from its bottom. It was therefore concluded that the current bull market has much farther to go in time and distance. But is this true?

The current bull climbed 36% after recovering in March 2013 from the mega-meltdown of 2007-09, and did so over 25 months. Since 1949, however, the S&P 500 gained an average of 74% after getting back to breakeven, and did so in 35 months. Therefore, the historical implication is that the current bull has the potential to more than double in price, and live an additional 10 months. Yeah, but this conclusion would also be misleading.

Mean vs. Median: Two concerns immediately come to mind. First, the five bull markets after the Crash of 1929 did not recover what was lost during the bear market of 1929-32. Only since 1949 have all bull markets recovered what was lost in each of the prior bear markets. Second, when using the average, or mean, it does look as if this bull market has a long way to go before running out of steam. However, the median indicates that this bull market’s time is already up.

Borrowing from Peter: S&P Capital IQ reported on Friday that aggregate second-quarter earnings now show a 72% beat rate, versus the historic average of 66%, and the S&P 500’s Q2 EPS estimated decline had shrunk to 2.0% from the -4.4% expected at the start of the reporting period. Good news, right? Not when you consider that estimates for the remaining two quarters of the year, along with all of 2015, have come down.

Degrees of Tightening: The Fed seems to be going out of its way to assure investors that future rate increases will be minor in scope, measured in pace, and exceedingly well telegraphed. Many believe the Fed will initiate its newest rate tightening cycle in September of this year with a 25 basis-point increase in the Fed funds rate. Some, however, go so far as to predict that the Fed will raise short-term rates by as little as 10 bps. Should such a small move occur, however, it would be the first one in history.

Distribution of Discount and Fed Funds Rate Hikes/Cuts

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