10-15 Associates

Anatomy of a Bull Market

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Very quietly and with little fanfare, the market set several new records! In addition to the S&P 500 and the Nasdaq hitting new all-time highs, we have now entered into what is the longest bull market on record. For many, this has also been the most hated market in history. Since the turn, which goes back to March 9, 2009, here we stand 3,453 days later and there are still many non-believers. Although the chart now looks like a relatively smooth run, there have been many challenges along the way. It is fitting therefore that this record comes during the midst of fears of trade wars, announcements of new tariffs, talks of impeachment of our president, and turmoil from Europe to Iran. The month also brought the annual meeting of the Federal Reserve in Jackson Hole, in which the Chairman noted, “The economy is strong, inflation is near our 2% target, and most people who want a job are finding one.” The Nasdaq posted its strongest August in 18 years, gaining 5.7% and interest rates seemed to digest all the news without much notice. Additionally, the Dow and the S&P 500 both added to their gains by progressing 2.1% and 3% respectively.

Many of you were in the market during the decline of 2008 to early 2009. If only we knew that less than 10 years later we would be talking about new highs and the longest bull market, it would have made those years much easier to get through. I often talk about perspective when discussing investing; This is one of those times that perspective matters. If you just so happened to get into the markets in early 2009, it has been an amazing run and even so, this has not been the strongest bull market, although it is the longest. The S&P 500 has gained 324% during this run as compared to the 417% gain of the second longest bull market from 1990-2000. There is actually some debate about that bull market and where the beginning should be marked. To understand this, you need to know the definition of a bull market. It is any period of time that the market avoids a decline of 20% or more. Between July 1990 and October 1990, the S&P 500 declined by 19.92%, which most economists agree would be rounded to 20%. If you do not count that decline as a bear market, the beginning of the move to the highs of 2000 would go back to late 1987 and would therefore be counted at 4,494 days. Regardless of how you count the days, we are in uncharted territory in many ways and it will be a period of time that future market participants reference from many perspectives.

If you had entered the market in 2007 and quickly experienced the impact of the financial crisis and what became the great recession of 2008 and 2009, it has not been quite as spectacular as it was for those entering the market in early 2009. The rate of return for those who were lucky to get in at the bottom in March of 2009 to today is 328.9%. For those who got in on October 31, 2007, their rate of return is just 87.27%. Had you bought oil in 2009, it is up 48.3%, but if you got in in 2007 you are down 26.3%. Let’s not forget that the heart of this crisis came from the housing market. New home prices bottomed in January of 2009 at $245K, hit a record high to close out 2017 at $402K, and then finished July at $394K, representing a 60.81% increase from the January 2009 low. For those of us in the stock market back in 2009, the banks represented the epicenter of the crisis, dropping to levels that seemed unimaginable just a few years earlier. JP Morgan traded at $47 per share in October of 2007. By March of 2009, JP Morgan had lost 2/3rds of their value, bottoming out at $15.90 per share. At the end of August 2018, those same shares would have cost you $114.60, a 620% gain from the March 2009 low. Its hard to believe that you could have picked up shares of Boeing back then for just under $30 at its low. Investors today seem more willing to pay $342.79, this August’s closing price, than they were willing to pay $31 on March 9th of 2009. Another victim of the crisis was retailers and more specifically those tied to the housing market. With hundreds of thousands of people losing their jobs and homes foreclosing by the thousands around the country, Home Depot stock lost nearly half of its value from the fall of 2007 to the low in March of 2009. The perspective back then was that for just $18.23, shares of Home Depot were still risky rather than a real bargain. For those brazen enough to keep them, or those willing to buy them, they closed the month of August at $200.77 per share. That represents a 1001% increase from the low but, more importantly, a 537% increase from the October 2007 price.


Bull Market


So as markets once again make new records and investors are reminded that although history does not necessarily repeat itself, it may provide some insight into the future. As this bull market extends into history making territory, everyone is now asking, “How long will it last?” It is important to remember that investors that weathered the storm prior to the start of this bull market have made respectable returns over the long run. Attempting to guess when the next big turn will come is a difficult and can be a very costly mistake. For the 20-year period from 1998 to 2017, the annual rate of return of the S&P 500 is 7.2%. If an investor had missed just the 10 best days for the S&P 500, their return would have dropped to 3.53%. Missing just the best 40 days would have put the return into negative territory. To be fair, if you missed the 10 worst days of the trading days your return would have increased to 11.3% and missing 40 days with the largest losses, the return would have increased to 19.05%. Market increases and losses are concentrated in relatively short periods of time. If your perspective is very short term, it is likely the market is not a good investment at almost any time. If, however, you are looking to accumulate wealth over the long term, it is likely always a good time to invest. Good investment decisions should focus more on how much to have invested rather than if to invest. As we reach these new milestones it is always a good time to reassess asset allocation and look closely at the fundamentals.

Right now, the fundamentals of the economy continue to point to a very strong picture with many variables improving. Consumer confidence surged to an 18 year high during the month of August. This could be reflected in the retail numbers from companies like Target. According to Brian Cornell, CEO of Target, “There’s no doubt that, like others, we are currently benefiting from a very strong consumer environment-perhaps the strongest I’ve seen in my career.” In addition, 51% of U.S. workers said they were satisfied with their jobs in 2017, the highest level since 2005. Jobless claims fell again, hitting the lowest level in nearly 50 years. The second quarter also showed strong profit growth with the Commerce Department reporting that it’s broadest measure of after tax profits rose 16.1%, the largest year over year gain in six years. “Earnings have been good no matter how you measure them,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. “The big takeaway here is that sales are up.” For many things in life, age does matter. Some things improve with age such as fine wine or the 1963 Ferrari GTO, which just sold this month for a record $70 million. Market participants often agree that bull markets don’t die of old age, they end in recessions. It should therefore be important to know that in a survey of economists by the Wall Street Journal, they remain optimistic about the health of the current expansion and say the average probability of a recession in the next 12 months is only 15%. As we have referenced other times during this cycle, according to Senior Economist at Ameriprise Financial, Russel Price, “Despite the noise, fundamentals are strong.” As always, we will continue to assess the risks and make adjustments to reflect those changes.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from 10-15 Associates. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.
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