Identifying The Next Bull Market Leaders: A Historical Perspective
The key to producing superior investment returns over time is to identify and participate in the dominant themes of bull markets while limiting or eliminating exposure to bear markets.
The Historical Leaders of Bull Markets
Throughout history, all bull markets in stocks have been led by a minority of stocks that reflect the dominant investment theme of the day, often associated with emerging or innovative technology. In the 19th century, markets were led at varying times by canal, railroad, and electricity stocks. In the 1920s, radio stocks drove the bull market until its famously unhappy ending.
The major investment themes of the decades since the 1950s illustrate not only developing technology but also shed light on the economic and geopolitical spirit of the times. For example, European stocks soared in the 1950s as the continent rose from the ashes of WWII. The famous Nifty Fifty market of the late 1960s/early 70s was led by tech stocks and conglomerates. Later, the inflation-ravaged 1970s proved fertile ground for commodities. The Internet Bubble was a classic bull market reflecting an emerging technology in every respect.
Recent Market Trends
More recently, strong market advances have been driven by companies that are derivatives of the Internet, such as the FAANG group, which later morphed into the Magnificent 7 as market leaders were given new life by their association with Artificial Intelligence.
While all bull markets are typically led by a minority of stocks, it is also typical that as bull markets end, these leaders begin to display weakening relative strength. The most recent example is the weakness exhibited by the FAANG group in the second half of 2021.
What to Expect in the Next Bull Market
History demonstrates that all true bull markets are led by a different group than their predecessors. The questions we seek to answer are: Where are we in the bull market cycle, and which stocks will emerge as the leaders of the next bull market?
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