Seems to be Never Ending Bull Market Might Have Come to a Halt.

It’s been a while since I wrote my last blog, the reason being is the market was behaving irrationally, so I decided to enjoy it from a distance. Undoubtedly, we have experienced a boisterous prolonged bull market in the history of the stock market. The valuation reached the extremism where every minor correction in the past two years led to a new all-time high. Hence in the fervour of impression, it seemed like a never-ending bull market.

Finally, in the past two weeks, we have witnessed a cascading fall which is enough to say that perhaps it is at least the end of the hypodermic advance. Whether it is the end of a secular bull market or not only time will tell, however in the history, every bull market has ended with a euphoric move like we have witnessed recently. Stock market season can extend for years, on average, secular bull markets have lasted 13 years in length. During that period P/E ratios are in a rising trend. And since corporate earnings have generally increased over time, the compounding effect of rising P/Es and earnings growth makes it easy to have extended period of positive returns like we have witnessed recently. Eventually, the bull markets end with high P/Es.

In contrast, bears don’t look like a bull. Most secular bear cycles tend to be violent and choppy, with sharp declines followed by abrupt increases. Bear markets doesn’t mean a persistent fall in prices, if the major indices are virtually unchanged for an extended period of years after a first significant fall that could also be considered a bear market.

Importantly, though, while many bear markets end up about where they started, some end up far below their starting points. In that case, one way to end up with a small fortune at the end of the bear market is to start with a large fortune at its beginning. I am not saying the current correction could take us back to the covid-19’s low in 2020 but the possibility of deeper correction is looming.

“Nobody should be puzzled as to whether a market is a bull or a bear market after it fairly starts. The trend is evident to a man who has an open mind and reasonably clear insight.”

Be Disciplined; be a savvy Investor!   

Pankaj