Tags: bull | Fed | economic | stocks

Fed-Fueled Bull Market Could Have Years to Run

By    |   Wednesday, 11 Mar 2015 08:22 AM

Six years ago, the bull market in stocks kicked off. At the time, few analysts expected the bull to last long since the economy was suffering its worst crisis since the Great Depression. Later we would learn that the Great Recession actually ended in June 2009 and the economy has been growing slowly since then.

In 2009, as usual, stocks were turning ahead of the economic cycle. We typically expect bear markets to begin before a recession starts and we expect stocks to bottom a few months before the recession ends. That relationship means the length of the economic expansion is important to consider when evaluating the age of a bull market.

For now, the economy continues to expand and a recession could be several years away.

This economic expansion began 69 months ago. The previous three economic expansions lasted an average of 95 months. Since 1982, the shortest expansion has been 73 months.

Something important happened in 1982 that changed the economy and the stock market. The Federal Reserve shifted its focus to interest rates that year. Prior to that, the Fed largely relied on fine tuning the money supply to regulate economic activity. Because of the policy shift, it's appropriate to look at how stocks and the economy have performed since 1982.

Whether you agree with Fed policy or not, the facts show the Fed has helped stabilize the economy. Before the Fed was created, the average economic expansion lasted 26 months. After the Fed was created, while the world largely operated on the gold standard, the average expansion lasted nearly 40 months.

Since the world adapted to the system of freely floating currency and the Fed began focusing on interest rates, economic expansions have lasted an average of almost eight years. This stability has led to the greatest bull markets in stock market history and provides a reason to be bullish for the next few years.

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MichaelCarr
Six years ago, the bull market in stocks kicked off. At the time, few analysts expected the bull to last long since the economy was suffering its worst crisis since the Great Depression.
bull, Fed, economic, stocks
319
2015-22-11
Wednesday, 11 Mar 2015 08:22 AM
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