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Bull-market run has
experts debating if
rally can endure
NEW YORK >> The bull market is back, according to at least some definitions of the term.
The Standard & Poor's 500 index this past week posted its best quarterly gain since late 1998. Wall Street's three main gauges are at their highest levels in a year. Investors are more upbeat that an economic rebound, three years in coming, is now under way.
Still, the bull market label gives investors a false hope of future, sustainable gains, according to experts.
"I've seen a concrete definition of a bear market as being down 20 percent, so for bull markets you could say it means rising 20 percent," said Robert Shiller, a Yale economics professor and author of "Irrational Exuberance," which correctly predicted in 2000 the bursting of the tech bubble.
"But it's often misleading to call something a 'bull' or a 'bear' market, because people think you've diagnosed something, when in fact all you've given it is a name," he said. "What they think it means is that it's going to continue."
Indeed, some experts define a bull market as a 20 percent upward move over any time period, while others prefer to see the gain sustained over several months to a year. A small minority refuses to declare a bull market until stock gauges reach a new peak.
There are also "cyclical" bull markets, which run for about a year, compared to multiyear "secular" ones.
Many experts believe Wall Street's current run can be best described as a cyclical bull market within a secular bear market, which began in 2000. Historically, secular markets last about 10 to 15 years, according to Ned Davis Research in Venice, Fla., so stocks could well return to bearish declines in a year or two, if not sooner.
Stocks already have gone through a cyclical bull market recently. Prices rose more than 20 percent from September 2001 to March 2002 following the Sept. 11 attacks. A flurry of accounting scandals, however, soon derailed that rally and stocks eventually fell to multiyear lows on Oct. 9, 2002.
In the current bull market run since Oct. 9, the Dow has advanced about 24 percent, the Nasdaq is up 49 percent, and the S&P has gained 27 percent. (The gauges, meanwhile, remain far off their early 2000 peak, when the Dow hit 11,722.98 on Jan. 14; the Nasdaq climbed to 5,048.62 on March 10; and the S&P rose to 1,527.46 on March 24.)
Sam Burns, research analyst at Ned Davis, said some analysts question whether stocks are in a longer-term bull market because there is still a great deal of economic uncertainty. For example, the unemployment rate remains high, shooting up to 6.4 percent in June; the report sent stocks moderately lower Thursday.
Still, optimism is high. On Monday, the S&P closed the second quarter with a 14.9 percent gain, the highest since 1998. The Dow and Nasdaq claimed their best quarter since late 2001, rising 12.4 percent and 21 percent, respectively.
"We are in a bull market," said Joseph Keating, chief investment officer at AmSouth Asset Management. He said the economy is expected to show 4 percent growth by year's end because of low interest rates, the dividend tax cut, a decline in energy prices and corporate cost-cutting.
"A lot of people don't like to acknowledge the bull market is in place -- particularly in the last three years where we had several rallies" only to fall back again," Keating said. "The equity market now has the wind behind its back."
But many analysts caution against using the term "bull market" too loosely. Burns believes investors might end up incorrectly analogizing the current advances to Wall Street's last secular bull market from 1982 to 1999.
"People that have been investing are used to conditions from 1980 to 1990. Back then, bear declines were short," he said.
Gary Kaltbaum, president of Investors' Edge Partners, a money management firm in Orlando, Fla., said he's not ready to declare any kind of bull market, noting that Wall Street has seen too many false starts the past three years.
Kaltbaum said he wants to see if the market holds up for another three to six months. Until then, he is calling the recent advances a "bull market move" or a "bullish move."
For the holiday-shortened week, the Dow Jones industrials rose 81.16, or 0.9 percent. They closed Thursday at 9,070.21.
The Nasdaq composite index had a weekly advance of 38.20, or 2.4 percent, closing at 1,663.46 on Thursday. The Standard & Poor's 500 index had a weekly gain of 9.48, or 1 percent, finishing at 985.70.
For the week, the Russell 2000 index, the barometer of smaller company stocks, rose 7.60, or 1.7 percent, closing at 456.35.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 9,462.51, up 104.04 from the previous week. A year ago, the index was at 9,313.40.
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