There were no fireworks, and not much champagne. Indeed, it wasn’t an anniversary that many people noticed. But on 9 March, the bull market in equities was five years old. It was on that day back in 2009 that the Dow Jones Industrial Average, the key global benchmark for stocks, edged down another 80 points to close at 6,547, its lowest level since 1997. Although no one knew at the time, that was the bottom, and it was to go no lower. From then onwards, the recovery was under way.
In London, our own low point came three days earlier, on 6 March 2009, when the FTSE100 index touched 3,530. There is an old saying among traders that ‘nobody rings a bell at the bottom of the market’. If they did, however, and you’d been lucky enough to hear it chime, you would have done very well. The Dow has since climbed all the way back to 16,000. The FTSE100 is bouncing around the 6,500 mark, and at the close of last year was getting close to 7,000. You would have doubled or almost tripled your money simply by putting it into blue-chip companies in two of the most developed markets in the world.
The trouble is, five years is a heck of a long run for a bull market. Take the Dow, for example. In the past century, the index has only chalked up five other rallies that lasted that long, and two of those rather worryingly came to a sorry end within a few days of the fifth anniversary. If it can just hang in there until April, this will be the fourth longest rally in history.
That is already taking it into elite company. The big daddy of bull markets was the huge run up in stock prices from 1990 to 2000, culminating in the dotcom bubble. That lasted for 117 months. Then there was the run from 1921 to 1929, which lasted 97 months, before it all came very messily unstuck. The rally after the second world war ran for 70 months from 1949 until 1956, and the bull market of the 1980s lasted, like this one, for 60 months, until the crash of 1987. So by any historical standards, this has already been an exceptionally long run.
The question is whether it is too long. Are shares are now heading for a fall? Once the market turns, the results can be very nasty indeed. The last bull market, for example, ended in October 2007, and from that point until the bottom was reached in 2009 the Dow lost 57 per cent of its value. The problem is working out where we are right now. There are a lot of different ways of judging these things. Measured by sheer length, as we have seen, this is already a long bull market, and can’t last much longer. Yet it hasn’t been especially strong. You’d have done well if you bought in the spring of 2009, but not as well as in some earlier rallies. In the great rally of the 1990s, you would have quadrupled your money over a decade. In the roaring twenties, you would have made five times your initial stake, which was perhaps why brokers flung themselves from the windows when it all came to an end. Even the bull markets of the early 1950s and mid-1980s had better returns that this one.
Even more significantly, the market is not that far off its long-term averages. The FTSE, for example, currently trades on a forward price-earnings ratio of 12.9, compared with a ten-year average of 11.9. It’s slightly over its average, but hardly dramatically so. Nor has it yet managed to reclaim its all-time high. The index hit 6,930 all the way back in December 1999. Most sustained rallies set a new peak — and the British market has not quite managed that yet.
Anecdotally, there is no sign of the kind of euphoria that typically signifies the top of a bull market. True, the market for new listings is starting to hot up. A few entrepreneurs are starting to get very rich by floating their companies. But Twitter is yet to be ablaze with stock tips, and few people are swapping their brokers’ email addresses on Facebook. No one has yet penned a best-seller explaining why it is different this time, and the Dow can sail up to 40,000 or 50,000 on a tide of technological innovation. It doesn’t feel like a market going crazy: most professional investors remain fairly gloomy, and amateurs are surprised to learn there is a bull market at all. The mania that characterises the London property market — which really is close to the top of a bull run — is so far hard to detect.
The important point to remember is that all bull markets come to an end, and this one is certainly not going to be any different. Typically they crumble once investors start to anticipate the next recession. After all, equities are just a claim on company profits — and in a recession, those profits start to go down. The slump of 2008 and 2009 was so deep — the worst since the 1930s — and the recovery so weak, many people seem to have forgotten about the business cycle. But the recovery has been going on for three years now, and that means another downturn is due in 2015 or 2016 at the latest. It may already be here — gold, usually a good indicator of trouble ahead, is rising again. Once a recession looks imminent, and probably a year beforehand, shares will collapse.
Just as no one rings a bell at the bottom of the market, they don’t at the top either. This has already been a good run. And the only smart thing to do is to start banking some of those profits, and putting the money into cash, or gold, or even bitcoin, before the collapse comes — because you certainly won’t be able to once the crash starts.