FlASH: Our works shows that this Bull market is still intact
The Big Q: Is there more?
The S&P 500, the U.S. market’s benchmark index, has gained about 310% since bottoming out at 676.53 points in 9 March 2009 at pricisely 1:00p ET during the Great Recession, according to my data.
The index is now just 5.4% below its recent high of 2,930.75 set on 20 September 2018.
This Bull market’s lifespan, the longest on record, speaks to financial markets’ resiliency in the face of a variety of shocks, including the Fed engineered correction during Q-4 of Y 2018.
A Key driver of the stock market is earnings, and the perception of whether the US economy can avoid a recession in here. Bull markets do not like the notion of a recession, and the market knows the signals.
So far corporate profits are growing, that’s usually the oxygen for further gains in the stock market and there are no overt signals of a recession any time soon, that is fuel for the Bull.
Profit growth for the companies in the S&P 500 averaged 25.6% in the 1st 3 Qs of last year. That slipped to 13.4% in Q-4 Topping expectations.
Earnings are seen to decline a bit in Q-1, and grow in the mid-single digits for the full year, and the US economy has been showing signs of slowing and is expected to continue this year.
The risk of recession grows in the face of the US economy’s current expansion that will become the longest in history by the end of July 2019.
That said, we see no Quarterly GDP declines through Q-4 of Y 2020, let alone B-B Q declines, which is the of thumb for a recession.
The Bull market has looked very vulnerable at times during its 10 year run, most recently in Q-4 of Y 2018. That was when concerns, including rising interest rates, the trade disputes, slowing global economic growth and some soft profit forecasts sent the S&P 500 South to worst December since the Great Depression.
That slide stopped on 24 December when the S&P 500 closed 19.8% below its all-time high, just shy of Bear market territory. It started is recovery promptly on 26 December when the Fed got out of the way, and the market jumped to its best start to a year since Y 1991.
The Fed put investors at ease in January when it signaled a prolonged pause in further interest rate hikes calming fears that it would keep raising rates at a pace that would not derail the growing economy.
A Key questions on the longevity of the Bull market is the outlook for inflation and what action the Fed will take to try to manage it.
For now, inflation remains below the 2% target used by the Fed to determine whether annual price increases are growing too rapidly. It was up 1.7% in the 12 months ended in December.
As long as inflation remains at that mark, the Fed has little incentive to raise rates.
The US economy turned in a solid performance in Y 2018, boosted by tax cuts and higher government spending.
Some economists see a weaker performance in the coming months and years. Some expect GDP to drop to a growth rate of 2% or less in the current January-March frame.
Uncertainty over trade has also helped cloud the outlook for company profits this year, still, even modest company earnings growth should keep the Bull market running.
We believe the Bull market is intact, and some point in here see new all-time highs for the US major stock market indexes.
Have a terrific weekend
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