March 9th Weekly Market Update

The current bull market, one of the most powerful in the S&P 500’s history, celebrates its sixth birthday today, March 9, 2015. The S&P 500 has more than tripled since the financial crisis closing low on March 9, 2009 (the index is up 206% since then), achieving a cumulative return, including dividends, of 244% (22.8% annualized). Since World War II, just three other bull markets have reached their sixth birthday, and only one (1982 – 1987) produced bigger gains ahead of its sixth birthday.

We do not think this bull market is about to end just because it’s six years old. Bull markets do not die of old age, they die of excesses, and we do not see evidence today that economic excesses are emerging. There is still slack in labor markets despite healthy job growth in recent months. The credit markets reflect rational behavior. We see few signs of overbuilding in the commercial and residential real estate markets. Inflation (with or without the effects of depressed energy prices) remains low, which has enabled the Federal Reserve (Fed) to remain accommodative. The accommodative Fed provides further evidence of the absence of the types of excesses that have marked prior stock market peaks.

Historically, the timing of Fed rate hikes can provide some insight into when recessions might be coming (though the Fed’s track record is far from perfect). The Fed typically reacts to built-up excesses with multiple rate hikes, contributing to the start of recessions. Bear markets then begin as market participants anticipate those economic downturns. Most of the post-WWII bull markets, including the internet and housing bubbles in 2000 and 2007, came after a period of multiple Fed interest rate hikes.

For the full article: HAPPY BIRTHDAY BULL MARKET