End of Cyclical Bull Market Near, S&P Asserts

October 18, 2004 (PLANSPONSOR.com) - Standard & Poor's revealed Monday that the performance of US equity funds in the third quarter of 2004 is in keeping with the latter stages of a bull market.

With large-cap value funds holding up better amid an overall decline in domestic equity funds, the investment research company stated that the US economy may be in a secular bear market that is combined with a cyclical bull market.

“After bidding up smaller, lower quality companies in the early stages of a bull market, investors traditionally turn to larger, more stable, and higher quality companies as growth becomes harder to find,” explained Sam Stovall, Chief Investment Strategist at Standard & Poor’s, in a press release.  “There is a possibility that we are in the midst of a secular bear market combined with short-term, cyclical bull markets, although it is too soon to tell.”

S&P’s definition of a cyclical bull market starts with a 20% or higher bounce from a prior bear market’s closing low, whereas a secular bull market sets record highs. The research company defines a bear market as a decline of 20% or more from recent highs.

The S&P Investment Policy Committee, commenting on the latest figures, stated that it believes that the cyclical bull market will remain in place in the coming year. The Committee is also projecting a 4.5% real GDP increase in 2004 and a 3.5% real GDP increase in 2005.

Along with comments on the nation’s current economic situation, S&P released growth figures for individual sector and style-based investments. Signaling the end of the bullish cycle, for 2004 there has been a 3.08% increase in large-cap value funds, which vastly outgrew growth funds across the board. Large-cap growth has seen a 2.20% decline in 2004, which has been mirrored by a mid-cap growth decline (-0.38%) and a small-cap growth decline (-2.41%).

The third quarter numbers show even more dismal returns for these funds. Although large-cap value funds only shrank by 0.38%, growth-style funds were hit the hardest; large-cap growth tumbled 4.44%, while mid-cap growth offerings fell 4.80%, and small cap growth suffered a 5.88% drop.