Finally, the question we have been expecting for quite some time: "Hey Jeff, if you don't consider a 20 percent decline a bear market, what do you consider a bear market? Certainly if my clients took a 20 percent 'hit' to their portfolios they would consider that to be a bear market. Please advise." Well, in the 1949-1966 secular bull market, there were a number of 20 percent declines, but it did not end the bull market. The same can be said regarding the 1982-2000 secular bull market. More recently, we would remind investors that the S&P 500 had a 21.58 percent drawdown between 6/6/11 and 10/7/11, but that did not stop the raging bull (see chart below). So, here is a partial list of what we consider to be a bear market using the D-J Industrials:
• 6/17/1901 - 11/9/1903 (-46.14 percent)
• 1/19/1906 - 11/15/1907 (-48.54 percent)
• 9/30/1912 - 12/24/1912 (-43.54 percent)
• 11/21/1916 - 12/19/1917 (-40.13)
• 11/3/1919 - 8/24/1921 (-46.58 percent)
• And, of course, the 1929 and 1930s bear markets
More recently, October 9, 2007 to October 10, 2008 saw the Dow dive 40.34 percent. And, there is that date again, 10/10/08, so often referenced in these missives as where we think the first "leg" of this secular bull market began. Recall that 10/10/08 was when 92.6 percent of all the stocks traded on the NYSE made new annual lows for a seven or eight standard deviation event, which is not supposed to happen in your lifetime! Moreover, shortly after that 2007-2008 bear market began, we wrote about the Dow Theory "sell signal" that came on November 21st of 2007, which served as an alarm for the carnage that was to follow.
Moving on to the present, while we got "out of step" with the S&P 500 (SPX/2679.25) from mid-September to mid-November by being too cautious, we climbed back on board in mid-November expecting the rally to continue into the new year. In fact, we think the big equity surprise for 2018 is that it will be a repeat of 2017.
As for the passage of the Tax Bill, our D.C.-based policy analyst, Ed Mills, writes: