FINANCIAL SENSE: A TALE OF TWO BULL MARKETSSubmitted by Raleigh, NC Financial Advisor | Golden Years Advisors on December 8th, 2016
FINANCIAL SENSE: A TALE OF TWO BULL MARKETS
December 7, 2016
Our current bull market just finished its 94th month and is the 2nd longest running bull market in stock market history. We thought it would be interesting to see how our current bull market compared with the longest bull market that ever occurred at that same point (94 months). The longest bull market in history lasted for 4,494 days from 12/4/1987 – 3/24/2000 and ended when the Tech Bubble eventually burst.
Our friends at First Trust Portfolios published the following comparison that we thought you might want to take a look at. We find it interesting that (see below):
- Our current market has increased faster during its first 94 months of existence than the record holder (up 283% vs. 218%).
- Based on trailing P/E ratios, our current market is more “expensive” than the record holder (20.55 vs 16.66).
- Our current GDP growth is much higher than the record holder (3.2% vs 1.4%).
- And perhaps most amazingly, the record holding bull market lasted another 1,670 days or 4.5 year after reaching point.
No one knows when this bull market will end or what will bring about its demise. There is only one constant in the stock market: its ever changing.
Source: First Trust December 1, 2016.
View from the Observation Deck
- A “bull market” is generally defined as a sustained period of rising stock prices.
- The current bull market, as measured by the S&P 500 Index, just hit 2,824 days as of 11/30/16, which equates to roughly 94 months. It ranks as the second-longest U.S. equity bull market in history, according to Bespoke Investment Group.
- The longest U.S. equity bull market lasted 4,494 days (12/4/87-3/24/00), according to Bespoke.
- Keep in mind when looking 2,824 days into the longest bull market, that year (1995) was near the beginning of the “internet revolution”, which ran until March 2000. In other words, a unique economic event.
- Perhaps the statistic that sticks out the most is the size of the Federal Reserve’s balance sheet in November 2016 relative to where is stood in August 1995. The fed’s quantitate easing initiatives in response to the 2008-2009 financial crisis helped drive its balance sheet to its current nosebleed level.
- By buying more than $2 trillion dollars of bonds (Treasuries and mortgages) and dropping the federal funds rate to nearly zero, the Fed was successful in keeping short-term and longer-term interest rates artificially low for many years, in our opinion.
- For equity investors, the low-rate climate is still a potential tailwind moving forward. President-Elect Donald Trump’s pro-growth economic policies, such as infrastructure spending, pruning back government regulations and reducing corporate tax rates, cold add to that tailwind if enacted, in our opinion.