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Eight years and counting: What’s driving the most-hated bull market in history


The bull's bittersweet birthday

On Thursday, the bull market enters its ninth year. Despite the 250-per-cent gain in the S&P 500 over that period, the market gains that followed the Great Recession were met with deep skepticism and small-investor fear of a setup to another meltdown. We look back at the forces that have defined this unloved bull market.

When you're commonly known as history's most hated, and people have been betting on your death for years, a birthday is a bittersweet milestone.

But the bull market continues to defy its detractors with its very existence. Having already claimed the mantle of second-longest on record, today marks the start of the ninth year of the U.S. stock bull.

March 9, 2009, witnessed the low point in the stock-market crash that accompanied the global financial crisis and Great Recession. And although that date was Day 1 in what would become a once-in-a-generation equity rally, it sure didn't feel like it at the time.

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Eight years ago, it was all still falling apart.

U.S. unemployment was at a 25-year high, General Motors Co. was near bankruptcy, corporate earnings estimates were down by nearly half in under a year, and the bloodletting in equity markets was broadly expected to continue. The downfall had already wiped out $8-trillion (U.S.) in market value from S&P 500 companies, while the Dow Jones industrial average sunk to the same level it had hit 41 years earlier, after accounting for inflation.

With both indexes, as well as the S&P/TSX composite index, down by at least 50 per cent, some market watchers were declaring buy-and-hold investing dead in news stories accompanied by photos of woebegone floor traders. JPMorgan said it was possible the S&P 500 could fall another 25 per cent to the 500-point mark – a level not seen since 1995, before the Internet-stock boom.

But on that Monday, for no apparent reason, the bear market was suddenly exhausted, and the bad days quietly came to an end.

Cue the recovery. Within two weeks, the S&P 500 added the 20 per cent that is conventionally used as the threshold to signify a new bull market. And over the next eight years up to today, the resurgence in equities would add to the index nearly $15-trillion, and counting.

Here, we look back at the forces that have defined the bull market, and those that have threatened it.

Big Winners

The past eight years have seen the S&P 500 index rise by a cool 250 per cent, meaning $10,000 invested at the bottom would have grown to $35,000. Including reinvested dividends, that number rises to $41,500.

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But those returns have by no means been evenly distributed over time or across sectors. The early gains were the most dramatic, punishing those who sat out the first leg of the bull, as the index rose by nearly 70 per cent in the first year. Year 5 was the only other year to see a price change in excess of 20 per cent, while last year's anniversary was the first to mark a 12-month decline, as the market was still smarting from the oil shock and concerns over the global economy.

In terms of sectors, while all produced positive returns over the past eight years, broadly speaking, cyclical sectors outperformed defensive sectors. Consumer discretionary, financials, technology and industrials, which are typically outsized beneficiaries of an expanding economic backdrop, all more than quadrupled in value, while utilities, telecoms and consumer staples fell short of the index. The outlier in that dichotomy is energy, the biggest laggard, having undergone one of the worst crashes in oil prices on record.

Who called it?

Less than a week before the end of crash, then-president Barack Obama made what would turn out to be an incredibly well-timed market call. "What you're now seeing is profit and earnings ratios are starting to get to the point where buying stocks is a potentially good deal, if you've got a long-term perspective on it," Mr. Obama said in March, 2009. Investing pros commonly credited with calling the bottom include Vanguard Group Jack Bogle, who said in late February, 2009, that the market had to be "close to the lows." Jeffrey Saut, chief investment strategist at Raymond James, was another. On March 2, 2009, Mr. Saut said he was going "all in."

Canada vs. U.S.

Canadian stocks have largely been taken along for the ride, but resource concentration has the S&P/TSX composite index badly trailing its U.S. counterpart since both bottomed out on the same day eight years ago. Since then, the Canadian market has suffered through two drawdowns in excess of 20 per cent, which conventionally marks the start of a cyclical bear market. Both times, in 2011 and again in 2015-16, commodities retreated sharply. As a result, the main Canadian index has little more than doubled over the last eight years. The good news is that over that time, the combined weighting of energy and materials sectors shrunk from nearly half of the composite to less than one-third.

Wall of worry

It is said that bull markets like to "climb a wall of worry," meaning that continued gains come from surmounting negative forces that turn out to be temporary rather than fatal threats. Over the years, many fears have periodically gripped markets, including the European debt crisis, the Arab Spring, the U.S. fiscal cliff and debt downgrade, the oil crash, the freakout over China's slowing economy, the earnings recession, negative interest rates, Brexit and the U.S. presidential election. None have yet proven to be anything more than bricks in the wall of worry.

Most-hated bull market in history

This nickname was first applied to describe the high levels of skepticism toward the bull market among smaller investors. It stuck. Having suffered through two wealth-destroying market meltdowns of at least 50 per cent within a decade, first with the dot-com bust, then with the global financial crisis, many investors were hardly eager to put their faith and their money back into equities. As a result, over much of the bull market, cash holdings have remained extraordinarily high, while sentiment indicators have stayed low, even as stock indexes advanced to new heights. Last month, the American Association of Individual Investors survey registered its 111th consecutive week in which less than 50 per cent of respondents identified themselves as bullish, a new record.

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Is it time to take profits – or stay put? A contrarian suggestion Most market-timing tests assume that if you’re not in stocks, you will be in cash. A better strategy may be to stay in stocks, but in areas that can buffer Wall Street’s most manic tendencies.

There is no alternative

What became known as the "TINA trade" maintained that stocks were the only worthy investment class as a result of the backdrop of extraordinary monetary stimulus. As the global financial crisis was unfolding the U.S. Federal Reserve cut short-term rates to zero while suppressing longer-term rates by purchasing vast quantities of U.S. Treasuries. That backdrop helped boost corporate profit growth, fuelled the boom in share buybacks, and moved investors out of the bond market into stocks in search of a decent yield. Such was the strength of TINA, that any hint of the Fed hiking rates typically led to a sell-off over most of the course of the bull market. Only in recent months have improvements in the U.S. economy led to a measure of investor resilience to suggestions of the further withdrawal of Fed stimulus.

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