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03/09/18 04:15:02 PM
THE OUTLOOK

HAPPY BIRTHDAY, BULL!



The S&P 500's bull market that started on March 9, 2009 is celebrating its ninth birthday. Only one other bull market in nearly 100 years lasted longer. Indeed, should this bull remain alive and well by early September, it will inherit the mantle that has adorned the 113-month bull market of 1990-2000.

Thus far, this bull gained 325% in price through January 26, 2018 (the most recent all-time high), making it the second greatest bull market since WWII and the third since the one that ended with the Crash of 1929.

In the past nine years, while global stocks advanced a respectable 85%, U.S. small-caps led the way, surging 413%, followed by the S&P Equal Weight 500 (+399%) and the S&P MidCap 400 (+364%) indices.

In addition, all 11 sectors in the S&P Composite 1500 rose in price, led by the consumer discretionary (+540%), information technology (+492%) and financials (+440%) sectors. Laggards included utilities (+129%), telecom services (+75%) and energy (+57%). Finally, 97% of the S&P 1500's 145 sub-industries gained in price during this bull market, led by quadruple-digit advances for broadcasting, internet & direct marketing retail, managed health care and real estate services.

Today, the question on most investors' minds is "Did this bull market end in late January, or are we just enduring a traditional resetting of the dials?" At CFRA, we acknowledge this bull has begun to buck more aggressively, but we don't think it is about to be tamed any time soon. Bull markets don't die of old age, they die of fright - and are most afraid of recession. Even though the current wall of worry remains elevated, we see no recession on the horizon that would pose an impediment to global economic expansion nor stall the projected improvement in corporate profits.

Before focusing on the future, let's bask for a moment in this bull market's glow. The primary reason for this unprecedented advance is that the S&P 500 experienced its first and only profits loss in history in Q4 2008. Also supporting this increase has been the mediocre growth in the U.S. economy, which has recovered from its deepest contraction since the Great Depression. Since 2009, it has posted only a 20% cumulative gain, equal to the median since 1949, but well below the advances seen in five other bull markets, in particular the 39% jump in Real GDP enjoyed during the bull of 1949-56. Finally, a dubious distinction of this bull market has been the expansion of valuations along with the growth in earnings and the economy. Indeed, this bull market sported a trailing GAAP P/E of 26X, just four percentage points below the bull-market ending P/E peak of 30X recorded just prior to the bursting of the Tech Bubble. But even today's high P/E can be justified by the historically favorable inflation and interest rate environment.

There you have it. This bull market will soon embark on its quest to record a double-digit duration, encouraged by a coordinated global economic expansion and a near 20% jump in S&P 500 operating profits in 2018, assisted by the recent U.S. tax cut. Many don't believe it will endure and have begun to swim against the tide. But true to its astrological sign of Pisces, this market may continue to surprise its skeptical school mates and swim toward a long-distant sunset.

/Sam Stovall

 

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