The ongoing US bull market became the longest in history last week, but it seems ordinary investors barely noticed.
Stocks had been closing in on January’s all-time high for some time, but there has been none of the excitement one associates with such periods – bullish sentiment has been below historical norms for seven of the last eight weeks, according to American Association of Individual Investors (AAII) surveys. Muted sentiment has been normal for most of the last nine years, with investors still bearing the scars from the global financial crash in 2008-09. According to another AAII poll, most investors – 68 per cent – say their current financial decisions are somewhat or strongly influenced by the banking crash, with many opting to hold more cash or bonds in place of equities.
Things were different during past rallies. Banking and mortgage excesses underpinned the 2003-2007 rally. In the dotcom boom in the late 1990s, taxi drivers were offering stock tips and Joe Sixpack was day-trading the markets. Investors embraced the ‘greed is good’ ethos in the mid-1980s, with stocks enjoying staggering gains before suddenly crashing on Black Monday in October 1987. Things were famously heady during the roaring 1920s, a period of excess that ended with the 1929 Wall Street crash.
This bull market has been different. Many on Main Street have sat out the rally; many more are invested, but cautiously so. Bull markets tend to peak when everyone is bullish and fully invested; little wonder, then, that the “most hated bull market in history”, as the AAII call it, has also become the longest.
Investors indifferent to Trump’s woes
Donald Trump continues to overestimate his importance to the stock market, as evidenced by his prediction last week that markets would "crash" if he was impeached.
“I think everybody would be very poor, because without this thinking, you would see numbers that you wouldn’t believe, in reverse,” Trump said, in typically sub-literate fashion. Markets appear to disagree. Trump’s escalating legal woes saw the odds of impeachment spike higher last week, briefly exceeding 50 per cent on the prediction market website PredictIt, but stocks nevertheless hit new all-time highs.
And wouldn't they? Certainly, the 13-month drama in 1998-1999 surrounding Bill Clinton's impeachment did little to dampen bullish sentiment, Capital Economics noted last week, with the S&P 500 gaining 30 per cent over the period in question. Stocks suffered during the Watergate scandal in 1973-1974, but that was because of the oil price shock, not Richard Nixon's political travails.
Investors would drive themselves to distraction if they allowed themselves to get caught up in the endless political scandals that characterise the current US administration. "Equity markets don't seem to care," said DataTrek Research founder Nicholas Colas, "and we think they are right."
Tech stocks fuel Nasdaq’s long advance
For all the talk about the S&P 500’s apparently record-breaking bull run, the index’s gains are nowhere nearly as impressive as those registered by the tech-heavy Nasdaq index.
The Nasdaq bottomed in November 2008, four months before the S&P 500’s nadir. Although technology stocks tend to be more volatile, the index has managed to steer clear of bear market territory – a peak-to-trough decline of at least 20 per cent – ever since, gaining a massive 624 per cent during that period. Now almost 10 years old, it’s “easily” the longest bull market in Nasdaq history, notes Bespoke Investment, topping the eight-year 1990s bull run that ended when the index experienced a brief bear market in August 1998.
In terms of returns, the current bull market still cannot compare to the 1990-1998 rally, which gained 787 per cent. Still, it’s been an altogether smoother ride for technology investors this time around – the Nasdaq has now been above its 200-day average every single day since July 6th, 2016, notes Bespoke, easily the longest such streak in the index’s 33-year history.
Stocks can continue to gain
The S&P 500 looks set to rise again this month, the fifth monthly gain in succession. Last week, stocks hit fresh all-time highs. It can’t continue – can it?
Actually, it can, and it probably will. Some folks think indices will “proceed to crash” after setting all-time highs but “that just doesn’t happen”, tweeted OddStats last week. Noting that last week’s peak marked the first new high since January, he found 18 other occasions where the S&P 500 hit a new high for the first time in at least seven months. Returns have historically been “exceptionally bullish for the short-to-mid term” – on every single occasion, multiple new highs were set over the subsequent 100 days.
Nor should investors assume five monthly gains in a row are unsustainable. Since 1975 there have been 19 such instances, notes Fat Pitch blogger Urban Carmel. A year later, stocks were higher every time, enjoying median gains of 10 per cent.
