The US bull market is on course to be the longest in history, but that inevitably means it is closer to the end that the beginning.
- The US bull market has just 53 days left to beat the longest-ever bull run
- In the UK, there is 460 days to go before the FTSE All Share beats the previous bull run that started in November 1987.
- While there are reasons to think the bull run could keep going, investor enthusiasm is waning
The US bull market has just 53 days left to beat the longest-ever bull run (1990 to 2000). At 3,399 days, it has beaten the average bull run by 1663 days. While many will suggest it is a long but shallow run it has also beaten the average capital gain – 401% versus 283%.
These statistics – from AJ Bell - are all very impressive, but whichever way you look at it, it means that we are closer to the end than the beginning. At the margins, managers appear to be gently re-allocating to utilities and other beaten-up defensive sectors. In the US, it is notable that the FANG stocks have accounted for over 100% of the total returns in the S&P 500 for the year to date. Without them, the index would be in negative territory.
A similar picture is seen in the UK for the FTSE All Share, though the bull market has been more broadly-based. AJ Bell shows that the nine previous bull runs have lasted for an average of 1,200 days and offered an average capital gain of 143%. The upturn that began in March 2009 has already lasted for 3,403 days and delivered a gain of 133%. However, there is a full 460 days to go before it beats the previous bull run that started in November 1987.
There are still reasons to believe that the bull run has room to grow: Trump’s tax cuts, for example, have yet to be realised fully in the wider economy. Forecasts for economic growth in the second quarter are as high as 4.7%. Of course, this may well be neutralised by higher inflation and then higher interest rates, but in the meantime it is good for global growth.
There are other reasons to be cheerful: M&A activity is only just getting started, which suggests businesses believe there is still value to be found. Bond yields do not yet present an attractive alternative to the income available on equities.
However, for the year to date in 2018 investors haven’t much cared about all the good news on offer. They’ve looked at valuations, concluded that the bull market looks long in the tooth, and sold out. In some ways, this should be encouraging – it shows there is no euphoria in the market – but it does suggest that investor enthusiasm for equities is waning.
It’s difficult to make a good case for investing in equities at this stage. That doesn’t mean that they’re aren’t opportunities, but markets have been in thrall to loose monetary policy and the adjustment to a new environment may be painful.