The bull market with a cat's nine lives
Adam Shell, USA TODAY Published 7:50 a.m. ET March 2, 2017 | Updated 8:18 a.m. ET March 3, 2017
See what could jeopardize the second-longest bull market in Wall Street history. USA TODAY NETWORK
Does the Wall Street bull, which turns eight next week, have nine lives like a feline that always seems to land on its feet despite the perils it encounters?
It sure seems like this market has cat-like genes. A review of the countless crises and upsets this rising stock market has shrugged off since it began on March 9, 2009, highlights the never-say-die resilience of this aging bull – the second-longest in history.
A bull market is a period of rising stocks prices and a gain of 20% or more following a prior low for a major stock index. Bulls don't officially end until the market suffers a 20% drop from its most recent closing high.
Indeed, the Standard & Poor’s 500 stock index has gained 254% in the past 96 months (the fourth-best performing bull ever) despite a list of obstacles that even the most upbeat investors would admit seemed lethal enough to lead to the rally's demise.
The first scare came a month into the historic run, when U.S. automaker Chrysler filed for bankruptcy in April 2009. That opened the fear floodgates. Then the Greek debt crisis emerged in summer 2010. Twin shocks struck in 2011, the first being a 9.0 earthquake in Japan and the resulting scare due to the damaged Fukushima Daiichi nuclear power plant, which was followed by a rating agency's downgrade of the USA’s AAA-credit rating. Facebook’s confidence-killing botched IPO followed in 2012, along with the destruction and estimated $71.4 billion in damage caused by Superstorm Sandy.
In 2013, stocks endured the terror attack at the Boston Marathon, a “tantrum” by investors after the Federal Reserve said it would start tapering its bond-buying stimulus program and a 16-day shutdown of the U.S. government.
The Ebola crisis followed in 2014 as did tensions surrounding Russia’s land grab of Crimea. In 2015, stocks overcame Greece's near exit from the European Union, a summer stock market crash in China, a terror attack in Paris and the Federal Reserve’s first interest rate hike in nearly a decade.
Last year, the indestructible bull market recovered from fears of a Chinese economic meltdown, the U.S. stock market’s worst start to a year ever, oil prices plunging to a 13-year low, attacks by terrorists in Brussels and Orlando, Fla., as well as bombings in New York and New Jersey. UK’s Brexit vote couldn’t kill off the bull, either, nor could Donald Trump’s presidential election upset or a second Fed rate hike.
The new year has greeted the bull with questions surrounding President Trump’s economic agenda and talk of even more rate hikes, a trend that could take away a key pillar of the U.S. stock market during the bull run: low borrowing costs.
"We do not believe any of these negative factors (had or) have what it takes to knock America off of its perch,” said Thorne Perkin, president of Papamarkou Wellner Asset Management.
The obstacles certainly couldn't hold back the bull for long. “I like the metaphor of a cat with nine lives, as the bull run has been challenged by all these events,” said Nick Sargen, senior investment advisor at Fort Washington Investment Advisors.
So why didn’t any of the earlier crises cause the bull to falter and suffer an official bear market, or drop of 20% or more?
Sargen ticks off three reasons why the bull has been able to shrug off the bad news:
* Central banks to the rescue. The Fed and virtually all central banks around the world in the decade since the 2008 financial crisis “pursued unorthodox policies to keep interest rates close to zero, and in some case negative,” Sargen explained. Low rates have helped stimulate the economy, enticing people to start taking out loans to buy big-ticket items like cars and houses or finance home improvements. Low returns on bonds also have made stocks a more attractive alternative for investors in search of bigger returns. Central bank support has helped reflate an economy that was close to a depression back in 2008 in the depths of the banking credit crisis.
* Corporate profits rebound. When the financial crisis hit, U.S. corporate profits took a dive. Profits in the S&P 500 declined 31% from the end of 2006 to the end of 2009, according to earnings tracker Thomson Reuters I/B/E/S. Since then, profits have nearly doubled, rising more than 95%. That rebound gave investors the courage to start risking money in the stock market. Wall Street overlooked profit growth that turned negative from mid-2015 to mid-2016 because the overall earnings picture of the S&P 500 was skewed by big losses in the energy industry, which was hurt by plunging oil prices.
"Corporate profits rose much faster than expected, considering how overall economic growth was sub-par,” Sargen said, referring to the years before profits took a hit from the hard-hit energy industry and the subsequent profit rebound in the last half of 2016. “This is testimony to the ability of U.S. companies to keep costs under control and maintain high profit margins.”
* Economy avoids recession. Another key to the bull’s longevity has been the economy’s ability to avoid another contraction, added Sargen. An analysis by RBC Capital Markets shows that seven of the last eight bull markets ended “as the result of economic contractions.”
“All of the crises along the way – Eurozone debt crisis, U.S. budget impasse, China slowdown – were ultimately resolved without a global recession,” Sargen said.
Currently, investors are anticipating stronger U.S. and global growth, which is the main force behind the Trump rally, he adds.
“Bulls don’t die of old age,” says Perkin of Papamarkou Wellner, adding that despite low odds of a recession and a belief that Trump’s economic policies will boost growth, there’s always a chance of a pullback of 5% to 10% for today’s high-flying stock market. Still, he advises investors to stay invested as the positives outweigh the negatives.
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