Don’t Fear the Bull

Today marks the longest bull run in U.S. market history -- but what does that mean? In today's episode of Market Foolery, host Chris Hill and Motley Fool contributor Matt Argersinger explain. First, find out how "longest bull run" is calculated and why the term might be a little misleading.

Then, practically speaking, the guys explain how investors should navigate through such a long bull run. Also, Alibaba (BABA -0.03%) reported impressive earnings. If you thought they were big before, you were correct. They were. Now they're even bigger somehow.

Finally, the hosts dip into the mailbag and explain how after-hours trading works -- and why it's usually a bad idea. Tune in to hear more.

A full transcript follows the video.

This video was recorded on Aug. 23, 2018.

Chris Hill: It's Thursday, August 23rd. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio, Matt Argersinger in the house, on this historic day.

Matt Argersinger: Historic!

Hill: It is a historic day! We'll get to Alibaba's report, don't worry. We're going to get to Alibaba's report. But, as folks may have seen, the close of the market yesterday -- I didn't want to say anything on yesterday's show, because we taped before the end of the day, I didn't want to jinx anything -- marked the bull market that we're in right now being the longest run of any bull market in U.S. history: 3,453 days. It feels like we should have cake!

Argersinger: We should! I mean, it's 9.5 years. It's been quite a run. The definition here, of course, is, the stock market has gone this many days without a 20% fall. There's a slight caveat in that, in 2011, we almost had a 20% fall, we just didn't quite get there, so it didn't count.

Hill: What we were, 0.5% away? We were really close. 

Argersinger: Yeah, it was close. And 2011 was a rough year for the market in general. But we didn't have a 20% fall. I don't want to use the word "correction" ever since David Gardner said we can't use the word correction. And I totally agree with him, by the way. What does that mean, a correction? A fall? Is it correcting to something better if it falls?

Hill: And David's just asking a question -- wait, why is that correct? Why is the market falling correct? That doesn't feel like it's right, when two out of three years, the market goes up. 

Argersinger: That's right. I've tried to remove that word when I talk about stock market. A 20% fall, we haven't had one since the bull market started in early 2009. This is according to data from Tae Kim of CNBC. In this run, I guess this is as of maybe Tuesday, the S&P 500 is up 320%. Now, it's the longest bull market, but that gain is only the third biggest gain in modern financial history. You have to go back to the 90s bull market, which was basically 1992 early 2000, the S&P 500 during that era climbed more than 400%. So, hey, we still have some more run to go before we hit that mark.

I'll just say this, too. I don't know if you feel the same way, Chris. This bull market, its historic, but it feels like the most unloved bull market that I've certainly experienced in my relatively short investing career. I don't know if it feels the same way to you.

Hill: It does. I'll say a couple of things to that point. As someone who consumes financial media every day of the week, it does seem unloved in the sense that there really isn't the enthusiasm. Maybe it's partly due to the fact that we have significantly more media, I'm referring to social media, now than we had back in the 1990s. Maybe the pessimism, the drumbeat of, "This is all going to end badly," which continues, maybe there are just more outlets for that type of thing. But it really does seem like, to your point, I love the word unloved, it just seems like there are so many caveats that come along with this bull market. It's like, "Well, yes, but, the Fed has this policy of free money forever." It's almost like there are people making excuses. "Well, yes, but ... "

Argersinger: The economy's kind of muddled along and hasn't really caught up, and wages haven't really risen. Yeah, there's a lot of ands/ buts.

Hills: And all of that ignores the fact that if you're an investor, if you have been focused on the long-term and you have managed to tamp down the panic that hits every investor at various points, then you've been rewarded for that. 

Argersinger: That's right. The unfortunate thing is that, and the evidence shows, a lot of people just haven't been invested in this stock market. And it's probably because 2008, that bear market, that economic downturn, was so vicious and historic in its own right. It took many years for people to get comfortable with getting back in the stock market. In fact, if you look at data from the Investment Company Institute, which tracks flows into equity funds, including ETS, believe it or not, if you adjust for the returns of the stock market -- we know the stock market has quadrupled since early 2009 -- if you adjust for that, investors have actually pulled money out of the stock market over this 9.5 year period. Which is startling to me. Maybe there's reasons for that. Maybe it's because the baby boomers are retiring, and a lot of them are net sellers of stocks these days. But it's still startling to me that we can have such a great bull market, a historic one, yet less people have participated in it probably than ever.

Hill: Of course, now you've got -- again, going back to the drumbeat -- prognosticators saying, "Don't invest now, not when we're at the longest ... " And it's like, no, if you have the time horizon, if you have the means and you have the outlook of, I'm investing for 10, 20, 30 years, then any time is a good time to jump in. 

Argersinger: Today, you look at earnings growth, you look at business fundamentals, balance sheets, the tax reform, which is still making its way through the economy, there aren't a lot of negative reasons out there that suggest -- I was about to use the word "correction" -- a downturn in the stock market any time soon. 

Hill: Here's the only data point I will add: this bull market started on March 9th, 2009. Motley Fool Money debuted on February 20th, 2009. I'm just saying, Motley Fool Money started just a couple of weeks before -- is it the reason we've had this bull market? Who's to say? It's not for me to say. I'll just put the data out there.

Argersinger: Well, I'll say this, though. We'd better keep this machine running, then. 

Hill: Yeah, exactly. We can't stop now. Let's get to Alibaba. First quarter profits and revenue came in higher than expected. Maybe not surprisingly, the cloud division is growing nicely and quickly. It does seem like they have a little bit of margin pressure going on at Alibaba.

Argersinger: They do. I feel like this is becoming a pretty well-thread story, in the sense that you have a big company, big platform, spending a lot to grow user base, grow market share, grow into new markets like cloud computing for Alibaba. Of course, it's cost a lot of money to do that. There's pressure on the profit margin. If you look at, for example, sales at Alibaba's core e-commerce business of the company, up 61% year over year. That's actually up from 58% growth last year. They're accelerating that growth. But then, you look at operating profits. Operating profits were up only about 9%. It's tepid there on the earnings front.

But I look at this company and I feel, as big as they are, as big as Alibaba is -- I feel like we've said this before, but it's still remarkable to me that this is a company that, in the June quarter, they had 634 million monthly active users. That's up more than 105 million users from a year ago! I mean, I know that China has a lot of people, but 634 million? I feel like that's roughly half the size of the country now. I know they're in other places besides China, so there's probably that. But that's a tremendous number of users. And, growing at the rate it is at this stage in the company's maturity, it's incredible.

Hill: When you look at Alibaba and how big it is -- and, yes, the market opportunity is, of course, enormous. But then you look at JD.com, which is a company that I know you follow. JD.com is, what, one-tenth the market cap of Alibaba? Something like that?

Argersinger: Roughly, right.

Hill: I'm wondering if, for people who are looking at this opportunity and saying, "I want to get in on this," is one better than the other? Do you take a little bit of the basket approach, where it's like, why choose between Home Depot and Lowe's when you can buy a little bit of both?

Argersinger: Well, I've been riding the JD.com train, and that's because I like the model, I like the controlling your inventory, controlling your own distribution. They're really trying to create a good customer experience, not relying as much as Alibaba does on third party-sellers on their platform, where there's fraud, where there's shipping issues, things like that. 

But I have to say, operationally, Alibaba has been the better executor. I think it's because they have a bigger network, they have a bigger start in a lot of areas that JD.com is just catching up on. I look at Alibaba, which, like JD, is down 20-25% from its high. I'm starting to look at Alibaba and say there's probably a good opportunity here, with something so big, so dominant, growing so fast. 

Hill: Our email address is [email protected]. Question from Anthony, who asked, "Can you explain aftermarket trading? I have a basic understanding but don't know if there are any pros or cons. I know you hear this all the time, but I really look forward to your show."

Thank you for that! We don't hear it all the time. It's always nice when we do hear it. Aftermarket trading?

Argersinger: Anthony, I would have to say, when it comes to aftermarket trading, I see a lot more cons than pros. If it's something you haven't gotten into, good, don't worry about it. We hear this all the time. A company reports earnings, "Here's what's doing in aftermarket hours!" And the stock is moving, and you can see volume. And you're saying, "Well, wait a sec, the stock is actually traded after hours? After the market closes?" That's true. In fact, most large brokerages, even brokerages that you and I use, maybe Interactive Brokers, TD Ameritrade, E*Trade, they enable investors to buy and sell stocks after hours. It depends sometimes on the timings. I think E*Trade, for example, allows you to trade 04:00-08:00 PM. It varies depending on the broker. But in most cases, the broker is going to charge additional fees, sometimes double the commission that they would normally charge during normal trading hours to trade after hours.

I think the biggest risk, Anthony, is liquidity. There's just not a lot of volume in afterhours trading. If you're thinking to yourself, "Hey, the stock that I like reported earnings. It's going higher. I'm going to buy because I think when it opens tomorrow morning, it's going to be even higher." You have to watch out. There's going to be a huge bid-ask spread there. You might end up overpaying for something. And then, when it opens the next day, in regular trading hours, the price might look a lot different than what you got at 04:30 PM the evening before. I think it's just something you have be careful with. 

Hill: Not to mention the fact that -- maybe I'm just seeing the exception, not the rule, but it really seems like, every earnings season, we've got companies coming out, we see the stock either rise or fall 5-10%. And then, when it actually opens the next day, it's the reverse. And it's because of something that happened on the conference call. 

Argersinger: That's right. It's just one of those games I think you should really stay away from. You never know what's going to happen. Someone says something on the conference call later in the evening, or maybe an analyst comes out the next morning and upgrades or downgrades the stock, and it opens completely different than what you expected. You can end up holding the bag, as they say.

Hill: Matty Argersinger, thanks for being here!

Argersinger: Thanks, Chris!

Hill: As always, people on the program may have interests in stocks they talk about and The Motley Fool may have formal recommendations for against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you on Monday!

[Aretha Franklin -- Try Matty's]