The Longest Bull Run Ever
On Wednesday of last week, the main US stock market index, the S&P 500, dipped marginally but still managed to set a new record. 22 August 2018 marked 3,453 days of bull market, which many commentators hailed as the longest ever for the index. That period topped the previous record, set between 1990 and 2000, when the US market enjoyed an internet-led technology boom, ending with the dot-com bust.
The latest bull market arguably started on 9 March 2009 when share prices bottomed out in the wake of the 2007/08 financial crisis and the demise of Lehman Brothers in the previous September. At its low, the S&P 500 hit the devil’s number – 666 – a memorable floor from which it has since risen to a new closing high of 2874.69 (as of last Friday). As the graph above shows, there were a few hiccups on the way, such as the 2010 flash crash, the drop caused by concerns about China in the second half of 2015 and the sudden return of volatility at the start of this year. Nevertheless, since March 2009 the S&P 500 has achieved annual growth of 16.7%. UK investors in the US market would have done marginally better, as the pound has fallen 6.6% against the dollar since March 2009.
The S&P 500’s record run has thrown up a number of interesting facts, which may (or may not) give comfort to those worried about the continued longevity of what has been described as the most-hated bull market of all time:
- The generally accepted definition of a bear market, which puts an end to any bull market measurement, is a fall of 20% from the previous peak. However, the start date of the previous longest run (1990 to 2000) began after a market drop of 19.92%, not 20%. Stick precisely to the 20% threshold and the tech-bust of 2000 ended a bull market which started in December 1987 – a 4,494 day stretch.
To add a further twist, the market sell-off in 2011, prompted by political dispute over the US debt ceiling, was also over 19%, but under 20%.
- The 1990-2000 run produced a higher gain over the shorter period – 417% over 3,452 days against 323% over 3,453 days for 2009-2018.
- Look at the performance of the S&P 500’s components since March 2009 and three sectors stand out. Consumer Discretionary posted gains of over 610% and Information Technology over 530%. Together those two sectors cover the FAANGs (Facebook, Apple, Amazon, Netflix and Google/Alphabet). Coming up third was Financials, a reflection of the recovery of the banks from the 2007/08 financial crisis.
- Studying just the index numbers does not give a full picture of market value. The price/earnings ratio for the S&P 500 is currently around 24 whereas at the peak of the dot-com boom it was over 46. However, the S&P 500 index is 85% above its March 2000 level.
- For most of the current bull market, dollar interest rates have been ultra-low and there has been no shortage of cash, thanks largely to quantitative easing. The Federal Reserve kept its main rate at 0%-0.25% for seven years from December 2008 and only crossed the 1% barrier in June 2017. By the end of 2019 the Fed consensus is that the rate will be 3.25%-3.50% and quantitative easing is now running in reverse and accelerating.
- The current dividend yield on the S&P 500 is 1.77%, whereas the drumbeat of rising interest rates means that 2-year US Treasury bonds offer a yield of 2.62%. Holding cash and near cash is now a viable alternative for income-seeking investors.
- In global terms, the USA market appears expensive. As at the end of July 2018, MSCI’s World Ex USA Index had a price/earnings ratio of 16.29 and a dividend yield of 3.10%.
However you measure it, the US stock market has enjoyed a long, strong, run in this decade. How much further it has to go is a question which seems to have been around almost since the rally started, however Trump, love him or hate him, is fuelling the growth with tax reform and legislation simplication.