New York: You know the bull market’s the longest on record, and the $20 trillion it has added to share values is the most ever. But did you know it ranks second-to-last when it comes to a yardstick investors care even more about?
At 18 per cent a year since March 2009, the S&P 500’s return including dividends trails all but one of the 12 bull runs since the Great Depression. In fact, along with the 2002-2007 advance, it’s one of only two cycles that hasn’t scored annualised returns of 20 per cent or more.
In other words, you’ve had to wait to get paid, although at 400 per cent all in since March 9, 2009, the payday has been substantial: the third biggest of the past century. The relatively slogging nature of the current rally befits the equally shambling economy that has accompanied it, by some measures the weakest recovery since World War II.
“Duration is impressive, but total returns put it in a more reasonable territory,” said Bill Stone, chief investment officer at Avalon Advisors. “Maybe there is some good thing in that. When you start to worry about the economy and markets is when things get overheated. One thing with being slow and steady is, you don’t necessarily get overheated.”
If you look through other lenses you can see a bull market that is under-achieving. At its all-time high reached in September, the S&P 500 stood roughly 80 per cent above its most recent peak, in October 2007. That’s a lot, but it’s far from the biggest. In three other cycles — 1949-1956, 1982-1987, 1990-2000, the bull run didn’t stop until share prices had doubled from their previous top.
“When you ascend far enough, the air gets thin, as I am finding out as I climb stairs in Colorado,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.
Going simply by its wire-to-wire size, this rally ranks with the giants. In February, the S&P 500’s return over 10 years crossed 350 per cent, a milestone that has been breached only three other times. Those were started in December 1952, February 1987 and October 1997, data compiled by Ned Davis Research showed.
Just like the current cycle, those instances all followed big market crashes and occurred within a prolonged uptrend. After the initial breakout above the threshold, stocks continued to advance, with the S&P 500 rising an average of 58 per cent before suffering a 20 per cent decline.
What’s different now is the economic backdrop. US gross domestic product has expanded at an average rate of 1.8 per cent over the past decade, compared with 4.3 per cent in the 1950s and 3.2 per cent in the 1990s.
“Ten years is not long enough to completely erase the memories of traumatic events that mark the end of secular bear markets,” said Ed Clissold, chief US strategist at Ned Davis. “There are doubters, which means that money is still on the sideline,” he added. “Whether economic potential is unlocked will go a long way in determining how strong gains are from here.”