By Alan Bush | Senior Financial Economist at ADMIS
The financial crisis of 2007-2009 stunned the country and the world. Stock markets plunged, shedding more than half their value, as companies battled for survival, and on March 9, 2009 the S&P 500 hit a measly low at 666.8. Way back in 2009, there were very few people that were predicting a stock index recovery, let alone such a long-lived advance. However, in nine years, five months and 13 days, it more than quadrupled.
On Wednesday, August 22 the bull market in S&P 500 futures turned 3,453 days old, surpassing the previous record of 3,452 days that took place between October 1990 and March 2000. This milestone makes the current bull market the longest such streak on record. It is widely accepted that the bull market started on March 9, 2009, which marked the low of the financial crisis. Many analysts consider this to be the birth date of the current bull market, since that was the absolute bottom for the prior bear market, which ended that day.
A bull market is defined as a 20% rally on a closing basis that at no point is derailed by a subsequent decline of 20%. This market is considered to still be a bull market until it falls 20%, which generally defines the end of a bull market. Since the 2009 lows were made, there have been a multitude of geopolitical problems that temporarily adversely affected stock index futures, and every time stock index futures were able to recover.
Chart from QST
Well before the geopolitical issues de jour, the bull market was able to shake off a variety of “insurmountable problems,” including the euro zone debt crisis, which rocked Greece, Ireland, Portugal and Spain. In 2011, the credit rating of the U.S. was downgraded and in 2014 oil prices plummeted. Currently from trade wars, to inflation, to a less steep yield curve, many headlines currently continue to cast doubt on the sustainability of this economic cycle and bull market. Through it all, the markets have dipped, but have not fallen 20%.
The bears on U.S. equity markets cited several reasons why stock index futures shouldn’t have advanced this high and why they cannot go any higher. They refer to the fact that debt levels have been rising in the U.S. and in China, the world’s two largest economies, along with the expanding U.S. budget deficit, prompting some commentators to predict an imminent demise of the bull. In addition, analysts that are negative on this market argue that emerging market foreign exchange disruptions will be the catalyst for an imminent bear market.
In spite of the multitude of bearish arguments, this bull market has thrived thanks in part to the still accommodative interest rate policies, hosted by the Federal Reserve and other major central banks. Even though the Federal Open Market Committee has raised its fed funds rate seven times since December 2015, the central bank of the U.S. is still by historical standards very accommodative.
The bulls on this market have cited a variety of other reasons for these historic gains in stock index futures. They range from everything from earnings growth, share buybacks and $1.5 trillion in tax cuts that brought overseas cash flooding back into the U.S.
Should You Celebrate or Fade the Longest Bull Market in History?
I believe the latest geopolitical worries, including global trade tensions, Brexit uncertainties, the political and economic upheavals in Turkey, a less steep yield curve and inflation concerns will only negatively affect stock index futures for a short time. The U.S. economy and the stock index futures market rally have plenty of fuel left in the tank. While this bull market and economic recovery may very well be old, the still relatively low global interest rate environment suggests U.S. equity markets have plenty of upside both in duration and in price. My recommendation is to celebrate and not fade the longest bull market on record.
Higher prices for U.S. stock index futures are likely through this year and well into 2019.
For more information about these markets, please contact Alan at 312.242.7911 or via email at firstname.lastname@example.org. Thank you.
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Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The risk of loss in trading futures and options can be substantial. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. Research analyst does not currently maintain positions in the commodities specified within this report. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.
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