Everything you need to know about US stocks’ longest bull run

Publish date: 24th August, 2018

3,453 days! That’s the number of days the US stocks have been on a bull run for — arguably the longest such rally in its history. The previous best run was between October 1990 and March 2000, the time when the dot-com bubble went bust.

The last time the US stocks plunged by 20% or more was on March 9, 2009. Since then, the S&P 500 has nearly quadrupled. From 676 in March 2009, the S&P 500 is now trading in the 2,800 levels.

Not bullish about the record

There are handful of experts who disagree with this being the longest bull run in US history. Depending on different measures, research companies like Yardeni believe that the 1990 bull run actually started in December 1987 and not October 1990, and lasted 4,494 days. Another research outfit Bespoke argue that the current bull run ended on January 26, 2018. That’s because the S&P had fallen by 10% for the next two weeks from its January peak.

But S&P Dow Jones and Bank of America Merril Lynch measure the current run as the longest-running bull spree. Their criteria is that stocks shouldn’t fall below 20% in a single trading day. Only if shares plunge by that much do bulls get into a bear mode.

Therefore, it is clear that there is no set definition of a bull run. Regardless of the confusion, let’s look at some of the factors that have juiced up the US stocks in recent years.

1. Quantitative easing
The turmoil of the post-recession era compelled the G4 central banks to buy $15 trillion worth of assets, according to economist David Rosenberg. The large-scale stimulus is one major reason why US stocks remained immune from any post-recession volatility, at least in the early days.

2. Corporate tax cuts
The Donald Trump administration’s decision to cut corporate tax from 35% to 21% has aided market growth. Reduction in corporate taxes will help companies announce larger investment plans going forward.
Stock buybacks are another upside as well. Goldman Sachs believe that stock buyback programs could be as high as $650 billion this year, which is 23% higher than 2017. Buyback programs can be an indicator about the market’s confidence in itself and also suggests the surplus cash they have.
The dividend payouts have also been at an all-time high of $109.2 billion in the first quarter. High dividend payouts go a long way in improving investor sentiments because the market believe that companies are in fine fettle.

Also read: L&T buyback: What do experts say? | How to evaluate a buyback offer

3. Fed rates and low inflation

The lending costs have been comparatively low in recent years, providing businesses with ample opportunities to expand their operations, make new acquisitions and repay their debt.

The US central bank’s uber-low rates in recent years have meant that people have put their confidence in the stock market. Only when Fed rates rise do people start investing in the bond market as they are deemed to be safer.

4. High earnings

Robust earnings are critical for a bull run. The current spree is no different. The bull market has grown in 30 out of 35 quarters, as per a Business Insider report.

In the initial years of the bull run, companies reported high earnings due to cost-cuttings, but companies are now posting high profits due to a robust economic recovery in the US.

Strong earnings are important because it spreads confidence among investors that they can get inflation-beating return on their investment.

Also read: June quarter results: 7 terms you will hear often

5. Rise of tech companies
Facebook, Amazon, Apple, Netflix and Google have a total worth of $3 trillion. The tremendous success of tech companies in recent years have helped prop up the overall US markets. Unlike the dot-com era, the so-called FAANG companies have mammoth resources to withstand any disruption. Their earnings growth has also been more than double than that of S&P 500, which has boosted the overall US stock numbers.

Is the bull on borrowed time?

Most experts are of the opinion that the current bull run will snap over the course of this year.

Rising Fed rates and inflation are but two of reasons why the bear may overtake the bull in the coming months. That’s because high Fed rates and inflation can impact corporate earnings and as a result, the US stocks.

Also, the current trade war with China and Brexit may take a turn for the worse and compel the market into panic-selling.

To sum up, the current bull cycle may have been propped up by central banks in its initial phase, but the almost-decade-long surge in the US stocks have helped revive the economy and restore confidence on the Street.

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