Has it really been eight years since the world emerged from the great panic? It was March 9th, 2009 when the S&P 500 reached an intra-day low point of 667, a 57% decline from its record in 2007. Since that day, the S&P 500 is up 250%. At 97 months old, this bull market is not the oldest in post-World War II history; that title goes tot the bull market of the 1990’s that lasted 150 months and died in what we call the dot-com bust.
Even though this is the second-longest run for the stock market, it may be the most unloved market rally in history. That may be because of two “generational” bear markets back-to-back with the dot-com bust and the financial crisis. The average decline in a bear market is around 30%. Having two massive bear markets so close together (2000-2002 and 2007-2009) that saw declines well over 50% each time has left a long-lingering scar on many investors, making this market’s climb even more challenging for some.
In addition to being most unloved, you can add most questioned bull market as well. Some will say it has been propped up by an overly accommodative Federal Reserve that kept interest rates artificially low throughout the past eight years. As for the doubters, many scratch their head and wonder at the growth in the market compared to the below average growth in the economy. The market has grown between 3% and 4% a quarter on average since 2009. Meanwhile, the economic expansion has been one of the weakest on record.
Another sign of the unloved bull market is in the face of a 250% climb over the past eight years, investors have poured $1.5 trillion into bond funds while adding just $256 billion to stock funds, according to Bank of America. Just last month, flows into stock funds year-to-date have exceeded the flows into bond funds this year, so maybe this bull market is finally getting the love it deserves.
Regardless of it being unloved, questioned, and doubted, the market certainly has been resilient, posting a series of rebounds after several corrections. It is often said that the market always climbs a wall of worry. This time has been no different. The panic and fear that lingered after the great panic of 2008-09 had given some of the most seasoned investors on Wall Street reasons to question this market and its staying power.
Now here we sit after eight years, and bulls and bears are divided. Most would agree that valuations are extended and that rising interest rates will present a headwind for all investments, including stocks. However, trying to predict what happens next is a fool’s game.
At Doyle Wealth Management, we continue to hold fast to the truism that stocks are the most powerful wealth compounding tool we have ever known. However, we also know that making wealth and keeping it are two different things. “Keeping wealth” means a focus on valuations. Whether we are eight months or eight years into a bull market, capital preservation is always a good thing.
Nathan Rothschild, the influential English financier of the 1800s, was a keen observer of valuations and an extremely successful investor in his time. Rothschild is quoted as saying, “I will tell you my secret: I never buy at the bottom and I always sell too soon.”
Who knows what the next eight years will hold for the financial markets. It is safe to assume there will be ups and downs, volatility, panic, fear, and optimism. What you can count on and be certain of is our unwavering attention to valuations and fundamentals. Our disciplined approach to investing and our focus on our clients’ goals will light the path to positive outcomes and long-lasting success.