When valuations move from elevated levels to
historical lows over the span of several
market cycles, the result is a «secular
bear market» and headlines about the permanent death of equities.
The favorable
market performance associated with many
historical economic expansions is fully accounted for by 1) favorable post-recession valuations, with the S&P 500 averaging less than 9 times prior peak earnings at the recession
low, expanding to just over 11 times peak earnings in the first year of the bull
market, and 2) favorable trend uniformity, which typically emerges almost immediately in the form of a powerful breadth thrust off of a
bear market low, and is confirmed within a few weeks by much broader trend uniformity.