USA TODAY International Edition
ONE TOUGH BULL HAS CAT- LIKE NINE LIVES
Nearly 8 years old, Wall Street shows resilience to shocks
Does the Wall Street bull, which turns 8 next week, have nine lives? It sure seems like this market has cat- like genes.
A review of the countless crises and upsets this rising stock market has shrugged off since it began on March 9, 2009, highlights the never- say- die resilience of this aging bull, second- longest in history.
A bull market is a period of rising stock prices and a gain of 20% or more following a prior low for a major index. Bulls don’t officially end until the market suffers a 20% drop from its most recent closing high. Indeed, the Standard & Poor’s 500 has gained 254% in the past 96 months ( the fourth- best performing bull ever) despite a list of obstacles even the most upbeat investors would admit seemed lethal.
“We do not believe any of these negative factors ( had or) have what it takes to knock America off its perch,” said Thorne Perkin, president of Papamarkou Wellner Asset Management.
The obstacles certainly couldn’t hold back the bull for long. “I like the metaphor of a cat with nine lives, as the bull run has been challenged by all these events,” said Nick Sargen, senior investment adviser at Fort Washington Investment Advisors. Sargen ticks off three reasons why the bull has been able to shrug off the bad news: uCentral banks to the
rescue. The Fed and virtually all central banks around the world in the decade since the 2008 financial crisis “pursued unorthodox policies to keep interest rates close to zero and in some case negative,” Sargen explained. Low rates have helped stimulate the economy, enticing people to start taking out loans to buy big- ticket items such as cars and houses or finance home improvements. Low returns on bonds also have made stocks a more attractive alternative for investors in search of bigger returns. Central bank support has helped reflate an economy that was close to a depression in 2008 in the depths of the banking credit crisis. u Corporate profits rebound. When the financial crisis hit, U.S. corporate profits took a dive. Profits in the S& P 500 declined 31% from the end of 2006 to the end of 2009, earnings tracker Thomson Reuters I/B/ E/ S says. Since then, profits have risen more than 95%. That rebound gave investors the courage to start risking money in the market. Wall Street overlooked profit growth that turned negative from mid- 2015 to mid- 2016 because the overall earnings picture of the S& P 500 was skewed by big losses in the energy industry, hurt by plunging oil prices.
“Corporate profits rose much faster than expected, considering how overall economic growth was subpar,” Sargen said, referring to the years before profits took a hit from the energy industry and the subsequent profit rebound in the last half of 2016.
uAvoiding recession. Another key to the bull’s longevity has been the economy’s ability to avoid another contraction, Sargen added. An analysis by RBC Capital Markets shows that seven of the last eight bull markets ended “as the result of economic contractions.”
“All of the crises along the way were ultimately resolved without a global recession ,” Sargen said. Investors are anticipating stronger U.S. and global growth, which is the main force behind the Trump rally, he adds.
“Bulls don’t die of old age,” Perkin says.