The hellish-low of S&P 666 reached at that time is most likely a generational low that will, hopefully never be reached again … at least not in my investment lifetime. That was a secular, or long-term, bottom created by the Great Recession.
Today, seven and a half years later, the secular bull market that began in 2009 is certainly long in the tooth.
But just because the bull market is aging, that doesn’t necessarily mean it’s about to expire.
True, this secular bull market is the second-strongest in history in terms of length, second only to the bull market of the 1990s.
But there have been several bull markets that posted even bigger price gains than this one.
The 1980s’ bull run gained 229% in price. The post-World War II bull market in the early 1950s saw the S&P rise 267%, and the 90s’ bull racked up gains of 582%.
This compares to a gain of 221% for the S&P so far since the 2009 low. That’s measured by the standard definition of a bull market, which is a 20%-plus gain, without a decline of 20% or more.
But when it comes to financial markets, definitions can often be deceiving.
In 2011 for instance, the European debt crisis and the U.S. credit-rating downgrade triggered tightening financial conditions.
Stocks swooned that summer to within 9 S&P points (or just six-tenths of one percent) of a 20% correction … close enough to a bear market to be painfully uncomfortable.
Three years later, the Fed ended its easy-money quantitative-easing program in October 2014. Not coincidentally, stocks suffered an immediate “taper tantrum” selloff, and the S&P 500 has been on a roller-coaster ride, full of unexpected twists and turns, ever since.
Stocks essentially went nowhere for the next 18 months, until the S&P finally broke out to new highs in July.
Beneath the surface of the stock market, however, a lot more damage was done.
From early 2015 to July 2016, 269 stocks in the S&P 500 Index plunged at least 20% or more at some point, and never fully recovered those losses.
Even more small-cap stocks in the Russell 2000 suffered bear market-like declines of 20% or more during the period. Many have yet to recover.
Here’s the point: The 19.4% stock market decline in 2011, and the 20%-plus decline in so many individual stocks over the past 18-months, were both close enough to a bear market experience to count in my book, even if neither technically met the definition.
Enough damage was done to investor sentiment that it feels like a bear market just ended. In fact, retail investors have yanked almost $80 billion out of stock mutual funds so far this year. Meanwhile, they’re piling into fixed-income funds, at record-low yields.
That’s the kind of pessimistic behavior seen at market bottoms, not near tops.
Or as Sir John Templeton once said: “Bull markets are born on pessimism …”
Pessimism about stocks and the economy is pretty widespread right now and we’re certainly nowhere near the “irrational exuberance” climate of 1999 or 2007.
That means stocks may still be in the early innings of a longer bull run to the upside. Are there risks? You bet: Odds of a Fed rate hike are on the rise, we are entering a seasonally weak period of the year for stocks, and the November election looms.
But any stock market selloff in the months ahead should be a wonderful buying opportunity. Stay tuned!
Rate hike ahead: Federal Reserve Chief Janet Yellen speaking this morning at the Woodstock of monetary policy, the annual Jackson Hole confab, said, “The case for an increase in the federal funds rate has strengthened in recent months…” This, plus recent comments from other Fed officials sends a strong signal that the Fed is prepared to hike interest rates sooner rather than later.
Growth rebound: Yellen cited a more upbeat economic outlook as supportive of higher interest rates, but second-quarter U.S. GDP growth was revised downward this morning to a growth rate of just 1.1% for the three months ended June. Looking ahead, however, the Federal Reserve Bank of Atlanta’s GDPNow estimate pegs current-quarter economic growth at better than 3%. If that’s on target, it represents very strong acceleration in the U.S. economy over the summer.
Good money after bad: The world’s largest pension fund just lost $52 billion last quarter. Ouch! Japan’s Government Pension Investment Fund lost 5.2 trillion yen ($52 billion) in the three months ended June, thanks to bad bets on stocks and a surge in the Japanese yen. Last quarter’s loss wiped out the past six months’ worth of gains in the fund.