Happy Birthday, Bull!
No doubt you’ve heard all the buzz about the current bull market’s 10th anniversary, which makes it the longest bull run on record.
All told, it’s been a lucrative time. The current bull has added $20 trillion of market value. But while this is the longest bull market in history, it ranks only 11th in annual returns among the dozen bull markets since the Great Depression. That’s second to last on annualized rate of returns (ROR). Hmm.
The bull market is 10 years old: How much life does it have left?
What gives? And, more importantly, is our bull getting long in the tooth, or does it still have some time left?
For starters, slow is A-OK. Sure, you’ve had to be patient, but it’s a virtue that’s paid off. This also means that worries that the market is overblown, overheated, or overdue have less clout since the speed of our current climb has been darn near methodical.
I believe that our current state of “low and slow” growth has everything to do with the kind of economic recovery we’ve seen post-Great Financial Crisis. As is often the case, we can learn about the present by looking to the past.
Take, for instance, the fact that over the past decade we’ve seen an average 1.8% growth per year in U.S. GDP. In comparison, we saw 4.3% growth per year during the 1950s, and 3.2% during the 1990s. So, our current economic expansion has been far slower, far more methodical than previous recoveries. Hence, we have a more muted stock market.
As for ROR, we’re at about 18% on average today. How does this stack up to previous years? (Well, we know it’s low, but how low?). Take a look at some of the averaged ROR data spanning back to post-Great Depression:
- 1942-1946: 32%
- 1949-56: 28%
- 1987-90: 25%
- 1970-73: 27%
- 1991-2000 22%
As for peak to peak, looking to the September peak of last year, we were at about 80% of the October 2007 peak. But, in many past cycles (such as 1949-56, 1982-1987, and 1990-2000), the bull market didn’t end until the market had fully doubled. So, being at 80% feels pretty good considering that it’s not uncommon to see 100% gain before the next bear arrives.
All of these data point to our bull having more time before it heads off to hibernate.
Still, investors have a lot of fear these days, and our bull is fairly unloved. The scars of two recent 50% declines are real — and they serve to keep the market in check for the meantime.
The good news for investors, I think, is that this level of hesitance might mean that the bull market could last longer than anyone believes is possible. To quote the investing legend John Templeton, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
And today, there are very few signs of euphoria.
What’s next for the stock market?
Now that we’ve looked backward for insight, let’s turn to the future to see what may be in store.
For starters, government regulation is reversing course for the first time in decades. This comes on the heels of tax reform, which has arguably made the U.S. more competitive from a global corporate standpoint.
In 2017, for instance, we were at an average of 40% with federal, state and local taxes for companies. That was higher than India, France, Brazil, Japan, Germany and Canada. Today, we’re at about 27%, placing us behind every one of these countries except Canada, with which we’re now on par. And, the Federal Reserve seems to be practicing some patience itself — it’s no longer on an unyielding course to raise interest rates.
As for the trade war, it appears that there may be a compromise between the U.S. and China on the near horizon.
Looking to energy (a much-overlooked piece of the larger pie), a decade ago the US was the number one energy beggar in the world. In many ways, we relied on the kindness of our enemies or frenemies to meet our oil needs. Fast forward to today, and we are more self-reliant, so much so that the tables seem to have turned.
Our energy exports now match (and will soon exceed) what we import from the rest of the world. The state of Texas now pumps more oil than Iraq and Iran. And the number one oil beggar today? That would be China. Trade resolution, anyone?
For all of these reasons, it seems like our lovable but unloved bull might just stick around. Of course, no one knows for how long, but I’ll take a bullish uncertainty over a bearish certainty any day.
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