Recently someone asked me, “When did this bull market start?” It’s a great question because it can provide insight into whether the market is getting overextended.
Of course, bull markets have no specific length or expiration date. We can’t predict that there is “only X years” left in the current bull market. On the other hand, we also know that they don’t last forever. Some event will come along and eventually put an end to the party.
So where might we be in that cycle?
Before we answer that question, let’s think about what defines the beginning and end of a bull market.
When Does a Bull Market Begin & End?
Though there is no widely agreed upon definition, I’ve seen the following beliefs about when a bull market begins:
- After a 20% rally from the lows
- After a huge surge in optimism among investors (e.g. a big jump in investor sentiment)
- Multiple months of price increases
And, if we assume this is when a bull market begins, then a bull market ends when the opposite occurs:
- After a 20% decline from all-time highs
- After a huge surge in pessimism among investors (e.g. a large decline in investor sentiment)
- Multiple months of price decreases
While all of these conditions work, my philosophy for when a bull market begins and ends is based on what I like to call a “clearing event.” I would define a clearing event as any time when there is a significant decrease in both stock prices and investor sentiment. In other words, it’s all of the conditions above at the same time.
If you accept my clearing event idea, then a bull market would begin when we recover from a clearing event and an end when a new clearing event comes around.
Let’s run this logic from when I started investing in July 2012 to determine whether we had any clearing events.
Were There Any Clearing Events Since 2012?
Back in 2012, we were in the earliest stages of a bull market following the recovery from the GFC, a massive clearing event. Since then, I’ve seen the following declines in the U.S. stock market:
- Late 2015 (-12%)
- Early 2016 (-10%)
- Late 2018 (-18%)
- Early 2020 (-33%)
- 2022 (-25%)
Were any of these “clearing events”? For the most part, no.
The late 2015 and early 2016 declines were your typical run-of-the-mill intrayear pullbacks. These kinds of dips happen almost every other year, on average. The late 2018 drop was bigger, but also didn’t signal a massive shift in sentiment, so that wasn’t a clearing event either.
Now here is where I am going to lose some of you. The early 2020 COVID-related decline also wasn’t a clearing event. Though the market was down 33% at one point and the world was in panic, we avoided what would’ve been a large clearing event because the U.S. government stepped in with monetary and fiscal stimulus. And since the decline and recovery was so fast, the bull market continued unabated.
This explains why 2020 was an up year for U.S. stocks and why the S&P 500 saw a 76% return (not including dividends) from March 2020 to March 2021. That’s the 3rd greatest 1-year return in U.S. stock market history. The only two years which were better both occurred during the recovery from The Great Depression in the 1930s.
This leaves us with just one clearing event since I started investing in 2012—the 2022 decline. Let’s see why this decline officially ended the 2010s bull market.
Why 2022 Ended the 2010s Bull Market
The 2022 decline was not like any of the others over the past decade. Not only did stocks fall by 25%, but investor sentiment went with it. Investors started caring about profits as the Fed raised rates and there was a massive shift in expectations as a result.
You can see this clearly when you look at what happened to a lot of the big tech companies in 2022. Their prices fell of a cliff. For example, consider what happened to Meta, Amazon, and Netflix relative to the S&P 500 over this time period:
For these tech companies, the 2020 COVID decline barely registers in the chart above. Relative to 2022, it’s hard to tell it even happened. This is why 2022 was a clearing event and 2020 wasn’t. 2022 put an end to the decade long bull market of the 2010s.
Normally, such an end to a bull market would’ve lasted longer. I would’ve expected it to take at least a few years after 2022 before stocks turned around. But something happened in late 2022 that changed all of this.
ChatGPT: The Beginning of a New Bull Market
In November 2022, OpenAI launched ChatGPT which laid the foundation for our current bull market.
Without a doubt, this is what pulled us out of the late 2022 slump and started the rally we are still experiencing today. You can see this if you look at Meta, Amazon, and Netflix’s returns since the 2022 bottom:
Since the launch of ChatGPT, Big Tech has added over $8 trillion in total market cap. Because of this, it can feel like the 2022 decline never happened. But it did and it would’ve likely lasted longer had it not been for the launch and widespread appeal of generative AI.
So when people ask me when the bull market started, I have no choice but to say November 2022. This AI-fueled rally is what is holding up the market. And if the promises of AI fail to materialize, then much of the gains we’ve seen since November 2022 will likely go with it. Therefore, the bigger question is: how long can this AI rally last?
Unfortunately, I don’t know. There are people in the AI space who think that this is just the beginning. And there are others who are a bit skeptical of AI’s promise. I won’t provide my opinion because I simply don’t know enough about the discussion. In a Buffett-esque style response, it’s outside my circle of competence.
Either way, I didn’t write this post to tell you when this bull market will end. I wrote it to tell you that a new bull market has begun. This isn’t the stock market of the 2010s anymore, which means it’s anyone’s guess how long it might last. And, believe it or not, whoever wins the U.S. election today won’t impact the market as much as you think.
With that being said, happy voting and thank you for reading!
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This is post 423. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data
Thankfully, I’m back in the positive trend territory (last month my dividend income dropped because the distributions for some ETFs were decreased). If you like to track your dividend income like I do, here’s a free dividend tracker spreadsheet download for you. I find it …
Read moreOctober 2024 Dividend Income Update
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Skate to where the puck is going. – Wayne Gretzky This is the post I never wanted to write. That’s because index funds are the right choice and I don’t want to give anyone bad ideas. However, people keep asking me about it. So I give you this post. Before I get into it, let’s […]
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🎙️ Episode #368 – We’re diving into the case study of a couple from Oakland who transformed $80,000 into $1.4 million in equity in just…
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Real estate is renowned for its ability to yield substantial returns, making it a reliable investment choice in the realm of wealth accumulation. Nevertheless, the appeal of real estate investing is not without its hazards. It is essential for entrepreneurs to comprehend and control these risks when they enter this field. Intentional risk mitigation techniques […]
October 2024 Dividend Income Report — Documenting monthly dividend income and investment activity to chronicle the journey to financial independence. I am not a licensed investment advisor, and the content of this post does not constitute professional investment advice. The information provided reflects my personal investment experiences and opinions, and should not be interpreted as …
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The stock market outlook remains in an uptrend, but is on the verge of a trend change after another week of poor performance.
The world is awash in oil and gas. Lower energy costs are a big plus for the inflation fight allowing for additional rate cuts. That can provide a boost for the global economy and for stock and bond markets on the whole. But those lower oil and gas prices will suppress the the earnings and free cash flow for our oil and gas stocks. That’s exactly what we saw this past week as Imperial oil and Canadian Natural Resources reported earnings. These stocks are still free cash flow gushers and they delivered very strong numbers, all considered. They are very well managed producers. We’ll take a look at earnings and the loonie slips, on the Sunday Reads.
Before we dig into the Canadian oil stocks’ earnings let’s make sure you are not caught off guard by the falling Loonie. From early 2019 …
Don’t let the Canadian Dollar stop you at the border.
Thanks to investments we can hedge most every event. When it comes to massive asteroids hitting the planet or the Toronto Maple Leafs winning the Stanley Cup, we can’t help you there. Ironically, both of these unprobable events carry the same odds.
If you had bought the U.S. market (IVV) in early 2019, you would have turned every $1 dollar invested into $2.50. The returns are even greater in Canadian Dollars.
An investor with a well-balanced portfolio (including ample U.S. stocks or ETFs) will not stress over a weak Canadian Dollar, or on the flipside, any price spike at the pumps. Our oil stocks thrive on higher oil prices.
The bond market says not so fast, Mr. Powell
Bond yields have been increasing since the Fed in the U.S. introduced a 50 bps rate cut. That recent peak for the bond market (102) on the right hand side of the chart below aligns with the rate cut on September 18th. Remember bond prices go down as yields go up.
Here’s what Jim Grant has to say. It’s the massive (runaway) U.S. debt and deficits.
Once again we can hedge any event, even the worry (or reality) of runaway U.S. debts and deficits. Gold gold and bitcoin and real assets?
- AGG = U.S. bond market
- GLD = Gold price
- BTCTR = Bitcoin price
That’s why we might consider a New Balanced Portfolio. I’ve updated that New Balanced Portfolio post to show the drastic outperformance over the traditional stock and bond balanced portfolio. You’ll find the asset class returns that have offered that boost.
Mega growth from mega tech?
Framing the 3rd quarter revenue growth from one year ago …
Yes, it’s where they keep the growth – U.S.A.
Many of the Magnificent 7 and other growth stocks have reported earnings. The results have mostly been very strong, but the markets have slipped the past two weeks. The markets have voted, and they are not too thrilled about the election in the U.S. this coming Tuesday. There’s a chance that someone could win goes ‘the joke’.
Just keep in mind that even as extreme as things feel these days, when it comes to who is in power it doesn’t really matter …
I am updating the post on our U.S. stock portfolio. Here’s the key chart …
Oil profits slip
I put Canadian oil and gas stocks on the table for readers back in October of 2020, or about 500% ago
They were advertised as free cash flow gushers, and that story has played out, but has it run its course? Lower oil prices are holding back earnings growth.
Imperial oil reported third quarter results this past week with earnings down 20% from a year ago. Imperial is producing more oil, but obtaining lower prices.
Here’s the third quarter highlights from the Imperial Oil site …
Also from the report …
Industry refining margins declined versus the second quarter as increased supply outpaced global demand.
Net, net, or translation – the world is awash in oil. And gas is more than abundent as well. That’s good for the inflation fight. That’s good for the consumer, and a possible tailwind for global economies. But it certainly holds back our cash flow gushers. We need a certain price. Experts seem to suggest at least $50 for Western Canadian Select and $70 for WTI. Check out prices and commentary at oilprice.com.
Check out Canada’s top robo advisor
All said, we can see that Imperial Oil is doing exactly what we want, returning free cash flow to shareholders by the way of dividends and share buy backs (known as the shareholder yield). In the third quarter alone that tally was $322 million in dividends and $1.2 billion in share repurchases. That is impressive.
The Canadian starting line – the Big 4
I have long suggested an overweight to what I call the Big 4 in Canada – CNQ, IMO, SU and TOU (for natural gas). U.S. investors can certainly own this 4-pack on U.S. exchanges.
With a more integrated (diversified) model, the group has beat the Canadian index (XEG) and the U.S. energy index (XLE). The beat comes with much less volatility as well.
I continue to chip away at the Big 4. But keep in mind the sector comes with incredible volatility and long periods of underperformance is the norm. But oil and gas stocks can provide a wonderful inflation hedge. And I like the free cash flow ‘story’. I recognize that we are largely investing in the ability of the Saudis and OPEC+ to control oil prices. Oil has always been a manipulated commodity on the global pricing stage.
Keep your oil and gas weighting at a level that matches your risk tolerance. It’s just one part of the portfolio, and again, the bulk of your portfolio might enjoy those lower oil prices.
You can check out CNQ earnings as well. It’s the same modest reduction of profits and cash flow due to lower oil and gas prices.
Canadian Natural said on Thursday that its adjusted net earnings from operations for the third quarter stood at US$1.5 billion (C$2.1 billion), down compared with US$2 billion (C$2.85 billion) for the third quarter of 2023.
On Twitter, Burnsco shared the RBC take on another flawless quarter …
National Bank says, ya ‘us too’ …
It’s ‘all good’ even in the low $40’s (oil price) says CNQ management.
Take tolls on oil and gas too
We can make money coming and going. That’s by way of pipelines of course, known as a defensive sub sector that does not rely as much on oil and gas prices. The pipes can provide a nice hedge if the energy sector is healthy enough on the demand side. And certainly oil and gas demand is increasing at a more than decent rate. Prospects for natural gas might trump that of oil (note this is not a political pun).
I have penned a bunch on the pipelines over the years, here’s one of the latest with – What to do with the TC Energy spin off.
Both TC Energy and South Bow are performing very well from the time of spin off. TC Energy, Enbridge and Pembina are delivering nicely for our portfolios.
Buffett’s cash pile is bigger than his stock pile
Berkshire Hathaway reported earnings. And that report showed the ongoing sale of Apple and other stocks as the cash flow gets ready to burst at the seams, now topping $325 billion. That’s a sum bigger than the public stock portfolio. Keep in mind that Berkshire has many other divisions not in the public portfolio – insurance, energy, railways and more.
Cash is a drag on portfolio performance, but I don’t mind $325 billion in good hands. It’s a wonderful recession hedge. The world’s greatest investor would go hunting for incredible bargains to build generational wealth. BRK.B is the largest holding in my wife’s RRSP by a considerable margin. I’ve long suggested the stock as a must for retirees and near retirees. We keep adding.
More Sunday Reads
So many companies reported in the Dividend Hawk portfolio, find the deets here. It was a busy week for dividends received as well.
Banker on Wheels wonders how long can this exceptional U.S. stock outperformance last?
Stocktrades digs into subprime lender Goeasy. Another recent post looks at the troubles and growth anchors for TD Bank.
At Findependence Hub, Jonathan Chevreau looks at a new retirement product from Sun Life. I would be sceptical of any investment product from an insurance company.
Also on the retirement front Fritz at the Retirement Manifesto looks back on what he’s learned after writing over 400 articles on retirement.
At Tawcan, Bob offers up more on his 2024 goals and resolutions.
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This Roth IRA overview has been updated with information for the 2024 and 2025 tax years. Roth IRAs have become quite popular among the millennial generation (and beyond) and can be a great addition to your retirement savings arsenal. But, Roths bring a lot of questions with them, so I wanted to create a question and answer style article to address the most popular questions and basics. This article focuses on the 2025 & 2025 tax years, but, even if you are past a calendar year, it may still not be too late to contribute to IRAs (more on that
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This maximum IRA contribution article has been updated with information for the 2024 and 2025 tax years. The IRS has announced the 2025 maximum IRA contribution limit, which is the max that individuals can contribute to their IRAs in a given calendar year. The 2025 maximum IRA contribution limit will be $7,000, which is the same as the 2024 maximum IRA contribution limit (which was an increase of $500 over the prior year). Read on for expanded details, as some income limits have changed. Similar to 401Ks, the maximum IRA contribution limit is set annually by the IRS and it
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