Unloved Bull Markets

Chapter 15I Want My Money Back

In Chapter 14, Figure 14.1 showed the S&P 1500 chugging its way higher in 2019 and early 2020 and then the swift and severe twenty-three-trading-day crash. As a continuation, Figure 15.1 shows the S&P 1500 Index from its precrash peak of February 19, 2020, through September 10, 2021. The post-crash rally is so spectacular that the crash doesn't look so stunning any more. Two lines are on the graph because the rally changed personality midway through. From March 23, 2020, through September 2, 2020, the market resembled the previous eleven-year bull market in many ways. Then after about a two-month sideways pause, it emerged from an October 30, 2020, low with many different traits and behaviors.

In Chapter 3, we showed how the stock market typically leads the economy by six to nine months and that the economic news is bad at bottoms and good at peaks. We showed how unusual the peak in 2007 was in that the news led the market. Investors who sold on the first bit of bad news got rewarded and potentially avoided the bear market of 2008–2009. They learned a lesson and behavior that proved costly during the great bull market, because selling on bad or disappointing news prohibited the investor from participating in subsequent rallies. Similar to 2007, selling on the first bit of bad news about the virus worked again in February 2020. It is likely that there is a new generation of investors that continued the behavior of waiting for good news before ...