As you’ll hear countless times in the next two weeks, we’re approaching the fifth anniversary of the start of this bull market on March 6 & 9, 2009. Some analysts tell us that this bull market is getting “long in the tooth” or is “running on fumes.” Every down day seems to generate questions about whether or not this bull is on its last legs. True, two of the last three bull markets ended after precisely five years, but one bull lasted nearly a decade.
Will we end at five years, or keep rising?
Here is the length and strength:
|Last 3 Bull Markets||Length||S&P 500||Dow Jones||NASDAQ|
|1982 to 1987||5.0 years||228.8%||250.4%||186.1%|
|1990 to 2000||9.5 years||417.0%||395.7%||1451.3%|
|2002 to 2007||5.0 years||101.5%||94.4%||156.6%|
|Average (1982-2007)||6,5 years||249.1%||246.8%||598.0%|
|Current bull market*||4.96 years||171.4%||145.9%||236.0%|
|*Through February 21, 2014; Source: Yahoo Finance & Stock Trader’s Almanac|
We’ve seen several mini-corrections along the way, the latest being a 5.8% decline from January 15 to February 3, but the recoveries have been equally impressive. Even as we close in on new highs, the S&P 500 is not over-valued by most criteria. The forward P/E is a modest 15.2, according to economist Ed Yardeni. Two-thirds of earnings are still beating analysts’ estimates and 64% have beaten sales estimates. For the fourth quarter, with 80% of firms reporting, earnings are 10.7% above the fourth quarter of 2012.
Since 2009, according to Dr. Yardeni, the bull market has climbed a wall of worries that includes several iterations of three basic threats: (1) The imminent collapse of the euro, exemplified by rotating crises in Greece, Spain and Italy; (2) the imminent collapse of the U.S. government through debt ceiling debates, financial cliffs, sequesters, government closings, plus the regular election cycle; and (3) the imminent collapse of the chief engine of global growth, namely China – now part of an “emerging markets crisis.”
Despite these three ongoing soap operas, China keeps growing, Europe is recovering, and the federal circus (er, government) keeps cobbling together continuing resolutions while moving on to the next drop-dead date.
In the end, the stock market doesn’t care much about the euro, Congress or the Fragile Five. We can always be whipsawed by sideshows, but the market generally reflects corporate earnings. Analysts now estimate that S&P earnings will rise 9.3% (to $120) this year and 11% (to $133) in 2015.
Corporations raised a record $700 billion last year, on top of record-high cash holdings. Corporations control trillions in cash and use it for a variety of share-friendly outlets – like buying back shares, paying dividends, acquiring companies, hiring workers, or expanding operations.
In addition, we have a shortage of shares. In mid-1998, the “Wilshire 5000 Total Market Index” contained 7,562 stocks. Today, there are less than half that number – just 3,666 publicly listed U.S. stocks available to investors. Think supply and demand: More money chasing fewer shares equals …. What?
Altogether now, class: Higher share prices!