Market Strategy 3/8/2019
Tempus Fugit – Time Flies
Key Takeaways
- As the ten-year anniversary of the bull market’s beginning approaches we reflect on its longevity and resilience.
- We provide several charts illustrating the performance of the S&P 500 and its sectors from the equity market’s prior peak in 2007 as well as from its trough in 2009.
This Saturday marks the tenth anniversary of the S&P 500’s closing price low reached during the Great Financial Crisis. Those of us who were working in the markets on that day wouldn’t know for some time the significance of that day in that it would come to mark the bottom and end of the bear market that had battered the S&P 500 and taken it from the benchmark’s prior cycle closing price peak of 1565.15 on October 9, 2007 to an intra-day low of 666.79 on March 6, 2009. Three days later the S&P 500 closed at 676.53 establishing what would become the historic low for the S&P 500 in the period we have come to know as the Great Financial Crisis.
The bull market we have now experienced for nearly ten years rose from the ashes the next day on March 10th and notwithstanding a myriad of challenges that have surfaced since has climbed a series of walls of worry.
In our experience in the financial services industry—which spans over 35 years and includes every boom bust and recovery cycle since mid-1983—we've never experienced such a powerful and resilient bull market supported by so many factors including Federal Reserve monetary policy, a serial improvement of fundamentals (economic and corporate), technological innovation (that has permeated all 11 sectors of the S&P 500 and society) along with the relentless process of globalization (notwithstanding challenges from populism and nationalism).
The current bull market which began on March 10th, 2009 has been recognized not just by us but by many other market participants and observers as the least loved bull market since The Second World War. We cannot recall another bull market in our tenure in the financial services industry that has attracted such a staunch opposition of skeptics and bears as this one. In our opinion over the course of the past ten years there have been oddly few if any periods of irrational exuberance or animal spirits as a result. This is particularly the case in comparison to prior bull markets in the late 20th century and early ‘00s of this century.
Like any bull run there have been periods when this market may have gotten ahead of itself but it has been quick to correct when multiples seemed stretched, economic data softened or earnings growth disappointed. Livery drivers, shoe shine stand operators, barbers, hair stylists, waiters and bar tenders haven’t seemed to participate in asking for or offering stock tips to their customers in this bull market cycle.
Perhaps it’s the effect of technology on the flow of information that has fed the market’s propensity to discount both good and bad news quickly and as a result made this market prone to periodic episodes of profit taking, rebalancing and corrective action that have kept it healthier than prior bull markets.
We are often asked by both institutional and private investors when this bull market will come to an end. We usually respond by saying that there’s no expiry date stamped on a bull market as there is on a container of milk.
Indeed trees don’t grow to the sky and all bull markets and all bear markets come to an end. Historically it’s usually a mistake by the Federal Reserve, “a bolt from the blue”, a
“sock to the jaw” (i.e. an exogenous shock) or a “Black Swan” that brings a bull market down.
For now at least it appears to us that the current bull market will prove to have strong legs and broad horns to lift stock prices higher so long as the Fed continues to prove sensitive to both strengths and vulnerabilities in the economy, inflation stays in check, innovators innovate, consumers consume and the US and China manage to resolve their differences enough to stop the tariff war.
From the last week in December through the end of February the S&P 500 rallied powerfully on the wings of expectations for a resolution to the trade war, a good Q4 earnings season, improved communication from the Fed and a rally in the price of oil.
From the end of February through now the market has seen returning concerns about risks to growth; chances for a failure to negotiate a resolution of the trade war; fears that the Fed could turn hawkish if a trade resolution is arrived at and growth estimates rise again.
At moments such as these we are reminded that there never is an “all clear signal” sounded over the market. We are also reminded that where lies opportunity lies risk, and that wherever there is risk lies opportunity.
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