Bruce Whitfield: A record bull market run - what could possibly go wrong?
- Investors have never had it so good for so long.
- US markets have made history – recording the longest bull run since World War II.
- But they are leaving the rest of the world behind.
Investors in US companies are coining it and shares have been going up almost in a straight line for nearly a decade. Wednesday marked the longest unbroken bull market in history – 3,453 days.
For nearly nine and a half years, shares on the S&P 500, despite bouts of volatility, have seen no pullbacks of at least 20% since the market bottomed out on 9 March 2009. Since then, investors have seen returns of 323%.
On Wednesday, the current bull market run exceeded the duration of the previous best rally which began in October 1990 and saw gains of 417% over 3,452 days.
Bull markets by their nature tend to be protracted affairs. In the late 50s one lasted four years, with a six-month pullback followed by another almost four years of gains and another six month respite. Bull markets have tended to get longer over the years. Stocks were in bull market territory for much of the “greed is good” eighties which saw gains for more than eight out of ten years, despite the calamitous “Black Monday” crash of 19 October 1987.
Since October 1990, US stock markets have delivered a cumulative return of 850% to investors who got their entry and exit points absolutely perfect. Those who kept the faith that long-term wealth is made in markets over time did not panic through the emerging markets crisis, 9/11 and the Global Financial Crisis.
Four out of the five biggest companies listed in the US are technology firms. Apple this month became the first company in the world to be valued at more than $1 trillion, Amazon and Alphabet are not far behind and Microsoft remains a force to be reckoned with. Technology firms have become so dominant that even Warren Buffett, who once proclaimed he would not invest in tech firms as he could not understand them, has been taking significant stakes in the new giants of the US economy.
No other stock market in the world has been as resilient as the US amid a combination of bond buy backs and record low interest rates for much of the past decade instituted by then US Fed Chairperson Ben Bernanke. It has been fuelled even further by tax cuts by the Trump administration.
It makes the protracted gains look like an accident waiting to happen.
Stock markets have had the equivalent of giving a seven-year three cans of Coke, half a chocolate cake and an iPad loaded with the popular (but violent) game Fortnite and expecting there to be no withdrawal symptoms when you take away the stimulants after five hours of continuous screen time. You know there is going to be a tantrum, but you have take the pain because you created the environment which allowed it to happen.
Market booms come to an end and when they do, they happen fast and messily.
There is no telling when the next one will come.
US government debt is growing amidst expanded spending and a drop in tax revenues. Despite signs that the US economy is at last growing, there is no guarantee that it will be sustained in a rising interest rate environment. Despite the fact that hundreds of billions of dollars have been pumped into the US economy through the US Fed-led bond buyback programmes and quantitative easing, inflation has been muted.
Since the global financial crisis, South African markets have rallied strongly in rand terms too. The JSE bottomed out in March 2009 at around 18,500 after peaking at nearly 32,000 in May 2008. As the global financial crisis bit, the JSE nearly halved in value.
Had you bought at the bottom of the market in March 2009 you would have more than tripled your money.
The All Share index on Wednesday closed once again above 58,000.
The JSE first cracked the 50,000 level in June 2014 and has remained at or about that level pretty much since, with some brief periods of expansion and inevitably rapid contraction since. The JSE first cracked 61,437 in January during peak Ramaphoria but has since been very volatile in a sea of political, social and economic uncertainty. It has been moving in a range broadly between 55,000 and 58,000 - implying the market has gone nowhere in real terms over the past three years.
In real terms, non-diversified South African investors have been getting poorer over the past decade.
While growth rates in rand have been strong, persistent weakness in the currency has meant local investors have got hurt in terms of global wealth as the population growth outstripped economic growth during the decade of the Zuma administration.
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.
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