The S&P 500 has reached yet another all-time high, just as it streaks past the finish line to officially become the longest bull market in history.
It has been described “the most hated bull market of all time”, but today’s landmark proves those naysayers wrong. At 3,453 days – or nine and a half years – old, the S&P 500’s post-financial crisis rally has officially lasted for longer than the 1990s dotcom boom, which ended dramatically in March 2000.
Despite that statistic, Fidelity International points out that we’re still some way off the gains experienced during the 1990 run. Between October 1990 and March 2000, Wall Street recorded a gain of 417%; the figure for March 2009 to today stands at 320%.
While time itself is no reason to think the run will end imminently, many have been speculating over just how much longer it can continue. We have already heard from some multi-asset managers who are becoming more cautious without getting outright defensive.
But others are more constructive. Certainly, the adage that “bull markets do not die of old age” has been wheeled out enough. While it’s become a cliché, it’s a truism for Tom Stevenson, investment director for personal investing at Fidelity.
“By itself, the record length of the current rally is not a reason to think the end is nigh in the absence of either excessive valuations or over-optimistic sentiment,” he explains. “Yes, the bull market is long in the tooth, but I believe it can continue for some time yet.”
The US market might be fully valued compared to its counterparts, but Stevenson says Donald Trump’s recent tax cuts have boosted earnings sizeably, meaning valuations are not excessively high.
Meanwhile, sentiment is relatively subdued. “The euphoria which typically marks the end of a bull market is notably absent this time,” he explains.
Laith Khalaf, senior analyst at Hargreaves Lansdown, agrees. He notes that the fact many are questioning whether this exceptional period for US stocks will end in tears “suggests we are not in the throes of the irrational exuberance of the late 1990s”.
A Pale Comparison?
Further, both Stevenson and David Bianco, chief investment officer at DWS, note that, actually both the 1987 and 1990 bear markets were “at best, small bear markets”, at worst “painful corrections”. Taking them out of the equation, the current run is nowhere near the longest ever.
“You can easily see 1982-2000 as one long bull market,” Stevenson continues. “During that period, the S&P 500 rose from 102.4 to 1,527.5. By comparison, the recovery from the dark days of 2009 pales into insignificance.”
Meanwhile, David Coombs, head of multi-asset investments at Rathbones, is constructive on the case for US equities, noting that the bull run could continue for another five years; “or maybe five days – who knows with the big man at the helm”.
He sees plenty of scope for growth to continue for a few years yet, with drivers including easing fiscal policy, regulations and rising wages. “Clearly, margins will be pinched for companies with no pricing power, so stock selection is the key,” Coombs adds.
Time to Be Selective
Others are much more suspect on valuations. They certainly give Khalaf pause for thought, though “one could have made the same argument for several years and missed out on some handsome returns”.
Richard Garstang and Samuel Ziff, global equity portfolio managers at Oldfield Partners, say that the watchlist for their TM Overstone UCITS Equity Income fund is dominated by US companies. Valuation is the main reason they struggle to find opportunities to invest in US firms, rather than any lack of dividend-paying names.
That said, they do see selective opportunities, with tobacco firm Philip Morris (PMI) their most recent portfolio addition.
However, on a more general view, the managers take the example of one of the bosses of a portfolio company, Prem Watsa CEO and founder of Canadian insurance firm Fairfax Financial.
Watsa is known by some as the Canadian Warren Buffett, and Fairfax owns large stakes in companies such as Blackberry, much like Berkshire Hathaway does. He’s been credited with calling the 1987 crash and Japan’s crash in 1990, and profited from the 2008-09 financial crisis.
But he continued to be bearish on global markets ever since, and wrote a put option over the US market due to concerns on deflation, which has been a millstone. He finally unwound that short position – at a substantial loss – shortly after the election of Trump as President of the US, explaining Trump’s policies will be inflationary and positive for growth.
Ziff adds: “Prem Watsa was probably right in terms of Trump’s been very beneficial for US corporates, most notably with the tax cuts. That is a massive cost reduction for US companies.
“Whether they have to pass it onto consumers or it gets eroded through competitive pressures longer term time will tell, but clearly that in the short to medium term is a big benefit to their earnings.”
Most shy away from speculating on when the bull run will end, but Stevenson predicts the cycle won’t peak for at least another year, maybe much longer. In fact, it might be something – or someone – we have yet to discuss that eventually sparks the next crash.
“Bull markets don’t die of old age,” Stevenson continues, “they are killed by the Federal Reserve. If Fed chair Jay Powell can resist the temptation to tighten too far too fast, the bull market can remain intact.”
