Crash! Boom! Pow! Bang!
This isn’t a Batman movie. It’s the U.S. stock market, where every day and week seems to break new records and set new highs.
Even seasoned Wall Street wags find the nine-plus-year bull market both frightening and exhilarating.
“There are few things as scary as an expensive market that just gets more expensive,” Washington investment manager Michael Farr said. Stock prices have climbed so high that some people think they are ripe for a fall.
Brad Neuman, Investment Strategist at Alger, an asset management firm overseeing about $22 billion, isn’t afraid. His harbingers of recession — inflation and dramatically higher interest rates — are nowhere in sight.
“I don’t think we are at a dangerous precipice about to go into the abyss,” Neuman said.
In fact, according to information provided by Alger, the current bull market is 3.75 years younger than the Great Bull of the 1990s under President Clinton.
“We have significant runway left,” Neuman said.
Friday’s stock market, basking in earnings blowouts by Alphabet, Amazon.com and Microsoft, not to mention a 3 percent growth rate for the economy, seem to support Neuman’s sense.
Since the start of the bull market on March 9, 2009 — nearly 104 months ago — the collective market capitalization of the companies in the Standard & Poor’s 500-stock index has increase by $16 trillion, from $5.9 trillion to $21.9 trillion. That is a whopping 271 percent increase.
It has been 624 calendar days since the S&P 500 was down 10 percent from a record high or cyclical peak — known as a correction. Of the 46 stretches without a correction since 1929, this is the 11th-longest.
For perspective, the S&P 500 went 2,836 days without falling 10 percent between Oct. 11, 1990, to July 17, 1998.
(The data was assembled from Yardeni Research, Goldman Sachs and Morningstar.)
Since the last 10 percent correction on Feb. 11, 2016, the S&P 500 has increased 36.8 percent, creating $5.9 trillion in new wealth.
It has been 20 months since the last 10 percent correction. And it has been 16 months since the last 5 percent pullback in the S&P 500, the fourth-longest streak since 1929.
“It suggests that through thick and thin, investors have concluded they want to be in the market and the market is not going to give them an opportunity to get in at a lower price,” said Ed Yardeni, president of Yardeni Research. The rule is buy low,” Farr said. “This isn’t low. It’s tough to make money when you start with peak valuations. Caution is key. It’s silly to get picked off on third base.”
Dmitriy Katsnelson’s take on the bull reminds me when a friend and I were cooling our heels on a golf course, waiting for the four slowpokes in front of us to move on.
“There’s no place to go,” said my friend, as I exhaled in exasperation.
That is sort of how Katsnelson sees it.
“There’s a lot of money chasing fewer opportunities,” said Katsnelson, director of investment research at Bronfman Rothschild. “The U.S. public equity markets have gone from 7,500 to 3,700 securities over the past 20 years. The investible universe, at least in the U.S., is smaller.”
As for the future, “markets hit highs, and new highs don’t necessarily portend subsequent lows,” Katsnelson said. “It doesn’t necessarily mean you are in line for the next great sell-off.”
“It’s sort of a self-reinforcing mechanism that we have going on here. The kids call it FOMO, fear of missing out,” Yardeni said. “It’s as driven by FOMO as anything else. This market has gone from widely described as the most hated bull market of all times to widely love and embraced. I’m not quite sure why.”
“Surely, something changed with Trump’s election,” Yardeni said.
That may be, but according to Bloomberg many new presidents bring a bull market into office.
Franklin D. Roosevelt’s arrival boosted the S&P 500 41 percent in the first 11 months following his 1933 inauguration. The market caught fire in 1997 after the start of Clinton’s second term, soaring 38 percent in 11 months. Then there’s Herbert Hoover, elected in 1928, up 35 percent by living off the fumes from the Roaring 20s. Fourth is Bush 1 (31 percent), FDR 1944 (28), John F. Kennedy in 1960 (24) and, at No. 7, President Trump’s 19 percent run-up after Nov. 8.
Yardeni said “it’s not as if the bull market started on Nov. 9, 2016, but it does coincidentally appear as if Trump’s election revived some animal spirits.”
Since Trump’s election, the market capitalization of the S&P 500 has increased $3.4 trillion, from $18.5 trillion to $21.9 trillion. That’s a leap of 18 percent.
“I don’t think it’s just about Trump and just about tax cuts,” Yardeni said. “Trump deserves some of the glory, but the reality is the global economy is going very well. When you actually look at the fundamentals, they are good. That’s really what is driving this market. ”