S&P500’s is in a $18 trillion record bull run - August 30, 2018

S&P500’s is in a $18 trillion record bull run

Last week the record of the longest US bull market of the history was broken. The bull run arguably went on for more than 3,453 days. During this period S&P500 gained 321 percent in value, totaling up to $18.4 trillion.

We can see the longest US bull market of the history. Last week S&P500’s streak reached 3,453 days, making it the longest bull market ever, lasting from 9 March 2009. This is also the second strongest bull market of the history with a total growth of 321 percent, totaling up to a breathtaking $18.4 trillion. This almost equals the GDP of the US, the biggest economy of the world.

Returns of S&P500 during record bull runs

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What does a bull market mean?

Bull market basically means that prices are expected to rise. This is mainly about the market atmosphere, but it’s also backed by numbers. If time goes by without a 20 percent fall in prices, market is considered bullish. This is true for the S&P500 ever since 9 March 2009, therefore this is the longest bull market ever. If there’s a drop bigger than 20%, the market turns to bearish, meaning that prices are expected to fall.

Not everyone is sure, though, that this is the longest run of the history. Stocks obviously performed splendidly in the last years, but some still believe that bull market is over now. We will only realize this later, however, as these things are based on historical numbers. Still, the mainstream belief is that the bull market either matched the last one (the one between 1990 and 2000 and was ended by the dotcom bubble), or even surpassed it.

How did this happen?

This record-breaking bull market can be explained by several things. First, the long streak started after the global financial crisis of 2008. After the crisis, central banks around the world started to stimulate markets with close to zero interest rates. Later QE programs also started. These pushed investors away from (almost) risk free government bonds since their returns were too low. Stocks on the other hand became more and more attractive.

Price change of FAANG stocks during bull run

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There was another important thing: the FAANGs. These are Facebook, Apple, Amazon, Netflix, Google (or more correctly its owner, Alphabet). Some of these companies have the biggest market capitalization of the world, and all of them is growing at a crazy rate, generating record returns. (Microsoft is also among the leading tech companies but it’s not a part of the FAANGs.) According to Financial Times (article behind paywall), these “behemoths that seem to have taken over consumers’ everyday lives […] would have outperformed the bull market handsomely”. Moreover, the journal mentions that the performance of these companies is also important for the overall bull market.

What to expect now?

It’s hard to say what to expect now. At the beginning of the year we’ve seen the market correction that we’d expected long before it happened. Still, after the correction stock markets started to rise again. This rise wasn’t ended neither by Trump’s trade war, nor the constant interest rate hiking of the Fed (which other central banks are following slowly). Connected to this, we are also expecting bonds to make a great return, and gold seems to have a great entry point and is expected to rise significantly in the next months.

Financial Times reports that economic growth, tax cuts, repatriation and share buybacks helped S&P500 companies to report a surge in earnings per share. “Goldman Sachs believes US companies will repurchase a record $1tn of their own shares this year”, they write.

Since earnings are a very important factor in stock prices, if Goldman Sachs prediction is correct, that might help us to a positive market atmosphere in the times to come. Although as risks are higher this year, proper diversification is more important than ever.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.