Bull Market Turns 10

March 9, 2019, marked the 10th anniversary of the current bull market, the longest-running in U.S. history. In that decade, the market more than quadrupled, and when you factor in dividends, it’s up fivefold.1

The short-term spikes over the past few years coupled with corporate share buybacks have served to keep performance humming. As we move forward, a few points of note:2

• The Federal Reserve has recently exercised more patience when it comes to raising rates, which has helped stabilize long-term yields in the bond market.
• Some market analysts say 2019 will feature slower earnings growth, as evidenced by the first quarter drop in earnings estimates.
• While there’s little talk of a recession starting this year, overall growth prospects are expected to diminish.
• While growth stocks have been outperforming value stocks, those positions could reverse as growth subdues.

According to Citi Research, the U.S. stock market has been driven by share buybacks more than by new investor money over the past year. In 2018, corporate share buybacks reached a new record at more than $800 billion, and that trend was expected to continue through this year — fueled by money repatriated from overseas.3 At the same time, after last December’s stock market slump — the worst in 87 years — the market also saw significant outflows.4

With that said, whether you should invest more money in the market or transition to a more conservative allocation depends entirely on your own financial needs and circumstances. It’s a good idea to check in with your financial advisor periodically to weigh your current portfolio positions against your stated goals and timeline. Feel free to contact us for a portfolio consultation or a second opinion.

Credit Suisse’s forecast is bullish for the rest of 2019, positing up to a 20 percent gain on the year and earnings growth rate of 4.4 percent. The wealth manager says it sees the Fed’s more moderated stance, diminished fears of higher inflation and the potential for a favorable trade agreement with China as driving forces for lower volatility and the potential for higher stock market performance.5

According to LPL Financial Research, historical performance in relation to election years can provide some context for stock market forecasts. For example:6

In every midterm election (18) since World War II, the S&P 500 has risen in the following year and boasted an average return of 14.5 percent.
The third year of a president’s first term, as re-election is in their sights, also tends to yield a strong economy as the incumbent wants to set the stage for positive campaign messages. Over the past 19 years, the market has averaged a 15 percent increase in the third year of a president’s first term.
Another positive factor is a party split between the executive office and the two branches in Congress. This scenario generally leads to policy and legislative gridlock — and as far as the market is concerned, no major change is good news.

Goldman Sachs is a bit more bearish about the rest of the year. Analysts there expect weak profit growth across all sectors with relatively low returns and a narrow trading range. Peter Oppenheimer, chief global equity strategist at Goldman Sachs, points to ongoing trade disputes with China, Brexit uncertainty and general global concerns.7

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1 Eddy Elfenbein. Crossing Wall Street. March 8, 2019. “CWS Market Review – March 8, 2019.” http://www.crossingwallstreet.com/archives/2019/03/cws-market-review-march-8-2019.html. Accessed March 18, 2019.

2 Ibid.

3 Scott Gamm. Yahoo Finance. March 18, 2019. “There is one missing factor in 2019’s epic stock market rebound.” https://finance.yahoo.com/news/there-is-one-missing-factor-in-2019-s-epic-stock-market-rebound-163421765.html. Accessed March 18, 2019.

4 Ibid.

5 Yun Li. CNBC. March 18, 2019. “Credit Suisse raises S&P 500 forecast, sees 20% gain for 2019.” https://www.cnbc.com/2019/03/18/credit-suisse-raises-sp-500-forecast-sees-20percent-gain-for-2019.html. Accessed March 18, 2019.

6 Yun Li. CNBC. March 17, 2019. “After comeback, the stock market is aligned with a historical pattern with perfect track record.” https://www.cnbc.com/2019/03/16/stocks-have-rallied-after-every-midterm-election-since-world-war-ii.html. Accessed March 18, 2019.

7 Sam Meredith. CNBC. Feb. 8, 2018. “Don’t expect significant stock market gains in 2019, says Goldman’s Oppenheimer.” https://www.cnbc.com/2019/02/08/goldman-sachs-dont-expect-significant-stock-market-gains-in-2019.html. Accessed March 18, 2019.