The too-good-to-be-true bull market

The bull market that should have lost steam long ago stands out in several ways

The too-good-to-be-true bull market

The current US bull market has lasted for eight years, officially making it the second-longest on record. Having started for no apparent reason on March 9, 2009, it has been defined by several features.

A 250% rise observed in the S&P 500 in the past eight years has not been spread evenly over time or across all sectors, according to the Globe and Mail. Investors who got in on the ground floor enjoyed the most dramatic gains, with the first year defined by a near-70% rise in the index. Price changes in succeeding years did not exceed 20%, except for the fifth year. Last year’s anniversary marked the first 12-month decline, caused by the oil shock and global economic concerns.

Looking by sector, all produced positive returns, but cyclicals generally outperformed defensive sectors. Consumer discretionary, financials, technology, and industrials quadrupled in value; utilities, telecoms, and consumer staples, on the other hand, performed below the index. The exception was energy, which was battered by one of the most devastating oil price crashes recorded.

Canadian stocks have also advanced, but the resource-heavy S&P/TSX index has not risen nearly as much as the S&P 500. Two drawdowns of more than 20%, which typically ushers in a bear market, have held the Canadian market back. Both times, in 2011 and in 2015-16, the commodities sector took a beating, causing the main Canadian index to hobble its way to just twice its original value. Over that time, the share of energy and materials sectors in the index has shrunk from nearly half of the composite index to less than a third.

The current US bull market has also proven to be robust against threats. Despite events that have served as ammunition for economic prophets of doom – such as the European debt crisis, the Arab Spring, the US fiscal cliff, the oil crash, and a slowing Chinese economy – the boom market is still alive and kicking.

Having been burnt during the dot-com bust and the global financial crisis, many investors have looked on with arms crossed, keeping their cash holdings high and their expectations low. This has led to a disjoint between market performance and investor sentiment; a survey of the American Association of Individual Investors conducted last month marked the 111th straight week in which fewer than 50% of respondents identified themselves as bullish.

Related stories:
Canadians confident in stocks, funds