The stock market has accomplished something that only one other bull market in history has achieved — it survived to see its eighth birthday.
It was eight years ago today that the Dow Jones industrial average sank to its recent nadir of 6,547, as hundreds of thousands of workers were losing jobs and the global financial system teetered on the edge of collapse.
Since then, though, the Dow has skyrocketed more than 14,000 points to 20,855. The broader S&P 500 index of U.S. stocks has come roaring back too, returning an annual 20% to investors who had the nerve to stay in the scary market.
But this was by no means a straight shot back up. In fact, the second-longest bull market in the post-World War II era has been unpredictable, puzzling, and rather peculiar.
1. This Bull Has Been Unloved
“The current bull market has been the least loved, the most questioned and the most doubted bull that we certainly can recall in near 34 years of experience in the markets,” noted Oppenheimer chief investment strategist John Stoltzfus in a recent report.
That’s an understatement.
Even as this bull market more than tripled the value of stocks over the past eight years, the percent of households that actually own equities has sunk from 62% in 2008 to 52% last year, according to a survey by Gallup.
That’s the lowest level of stock ownership in the 19 years that Gallup has been tracking this data.
2. This Bull Has Been Persistent
World events since 2009 have been anything but supportive for a major stock market rally. Major industries such as banks and automakers neared collapse. The Federal government shutdown for 16 days. And political posturing in Congress in the Obama years brought the nation close to defaulting on the national debt.
Overseas, major European nations were crippled by a debt crisis, terrorists attacks spread around the globe, and China’s economy endured a dramatic slump.
Yet stocks kept chugging along.
3. This Bull Was Nearly Gored Last Year
Since President Trump’s election in November, the stock market has been on a a roll, as most major economic metrics have been pointing higher. So it’s easy to forget that as recently as a year ago, there was real doubt that equities would make it to this anniversary.
One year ago stocks were battered by a series of bad headlines, such as low growth in China and weak global demand for oil. A few months later U.K. voters decided to leave the European Union, and eventually Donald Trump was elected president — a plot twist that some analysts predicted would cause stocks to crash.
And yet stocks rebounded from their disastrous 2016 winter to deliver 22% over the past 12 months, according to CFRA, the third biggest year-over-year gain since March 2009.
4. This Bull Has Been Surprisingly Calm
Despite all of last year’s uncertainty, stocks have been remarkably subdued. In fact, compared to the bull market of October 1990 to March 2000, investors could afford to take a long, deep breath for the past 12 months.
“During year eight, the S&P 500 recorded 85 [days of more than 1% gains or losses] in 1998, but only 23 in the year just past,” according to CFRA’s Sam Stovall.
5. This Bull Is Getting Expensive
“Most importantly for investors, both stocks and bonds are now significantly more expensive than eight years ago,” says David Kelly, chief global strategist for J.P. Morgan Funds.
The current price/earnings ratio for the S&P 500 now rests at 18 based on projected profits over the coming 12 months. That’s about 12% above the market’s 25-year average, per Kelly. That could be a result of investors hoping that a GOP-dominated federal government will unleash billions in tax cuts and spending to jumpstart persistently lackluster post-recession economic growth.
By another P/E calculation, the market is even frothier. Based on 10 years of averaged corporate profits, the stock market’s P/E now stands at 29.8. The only other times the market has been this expensive by this measure was during the dot.com bubble and the Great Depression.
6. This Bull Is Egalitarian
Different sectors of the market have experienced their own highs and lows. Financial stocks, for instance, gained 149% from March 2009 – 2010, according to CFRA, but fell 9.5% two years later, before leading the pack last year.
Two years ago sleepy, defensive-minded utility stocks earned investors the best return (14.8%), while energy companies lost big league (-16.2%).
These rough edges, though, have smoothed out over the long haul. From 2009 to 2017, there’s only a 1 percentage point difference in annual returns between the top and second best sectors — consumer discretionary 25.7% vs. real estate’s 24.6%. Five sectors returned between 22% to 26% per year, while the weakest performer (energy) returned a respectable 9.4%.
7. This Bull Has Gotten a Big Assist from the Fed
Normally, there’s a pattern to bull markets. First, stocks rise, foreshadowing a rebound in economic growth. Then once the economy actually gets into gear, the Federal Reserve starts to tap on the brakes by raising interest rates to make sure the economy — and inflation — don’t overheat.
The cumulative effect of Fed rate hikes are often what helps bring about the end to bull markets.
This time around, though, the Fed has kept interest rates at historically low levels throughout the eight years of this bull. The Fed has lifted rates only two times throughout this entire rally — each time by a mere quarter of a percentage point.
But that may change as the Fed is expected to lift rates next week.
8. This Bull Will Turn 9
This bull market has dovetailed with one of the longest business cycles in American history. But all things end, which have some worried that a recession, and stock market declines, could eventually reappear.
But old age would be the wrong cause of death, should it occur.
“Bull markets don’t die of old age, they die of fright,” says Stovall.
Which means there has to be something to cause investors to sell en masse and move their money into safer assets. And usually that involves concerns over negative economic growth, i.e. recessions.
So will the economy contract in 2017?
It doesn’t appear likely. Demand for automobiles and homes remain strong, and the Fed has signaled multiple times that it believes the economy is strong enough to endure higher interest rates.
But that doesn’t mean you should expect prices to rise forever, or at least as much as they have in the recent past.
“With earnings growing more slowly, dividend yields and bond coupons low, and the potential for P/E ratios and real yields to mean revert, a traditional 60/40 U.S. stock/bond portfolio could well generate returns over the next five years that are less than half the roughly 8% annualized gain that such a portfolio provided over the past 25 years,” says Kelly.