To most Main Street investors, the post-2008 era has been something of an epic hangover. By and large, they have continued to eschew stocks for the palliative comfort of bonds.
Was it worth sitting out the last few years? What has actually been going on here since 2009, although it has been well-disguised at times, is a bull market. While the course of the bull has been highly uneven, it may continue if corporate earnings remain solid and there are no major calamities. And it may gain even more momentum if the new round of Fed easing boosts the U.S. economy in a significant way.
Of course, the euro zone muddle, lagging U.S. employment, meager consumer confidence and unseen other crises do not bode well for stocks. They never do. Yet there is the strong possibility that U.S. stocks will continue to head higher, defying the worst headlines.
First, some needed perspective. Stocks are still risky investments and always will be, although the best time to buy them is often when public perception is pessimistic. Share prices reflect real expectations of earnings, dividends and growth in what the underlying companies sell. The market is more volatile than in the past due to robotic, high-frequency trading and global news that travels at the speed of light. If you want something predictable to calm your nerves, buy a dog or cat.
Yet most large companies are profitable now and are sitting on a total combined estimate of $2 trillion in cash, which they are loath to spend on hiring and capital equipment. Consumer demand is not quite robust enough for their collective taste as most of the industrialized world deleverages.
Despite the anomaly between sour investor sentiment and generally strong corporate earnings, the bull market continued apace. As of September 6, the upsurge in the S&P 500 Index that commenced on March 9, 2009, had run 42 months for a 112 percent gain, the Leuthold Group reported in its latest "Perception" newsletter. That handily beat the average bull-market advance of 83 percent in rallies between 1929 and 2009.
The most recent advance comes close to the average bull-market run of 45 weeks for that period, Leuthold found. Overall, the recent ascent ranks as the sixth-largest since the beginning of Franklin Delano Roosevelt's first term.
Even more surprising is that other huge rallies have occurred when the economic outlook was bleak. The biggest run-up was from June 1, 1932, to March 6, 1937 - 318 percent - during the early years of the Great Depression. Maybe that comeback was more psychological as FDR bucked up the country during the early New Deal years. After 1937, though, there was not another triple-digit bull run until 1942 when the country was headlong into war production.
WHAT COULD ROPE THE BULL
What will pull the legs out from under the bull's charge? There has been all too much conventional wisdom that if the Democrats regain their hold on the White House and Senate, that will trigger a decline. Conversely, if tax-cutting Republicans capture the White House and Congress, that will trigger a stock rally.
If you are waiting for either party to win, you could be missing profitable opportunities. Leuthold finds no meaningful difference in the return of the S&P 500 Index under the stewardship of either party - going back to 1928. (Note: Prior to 1957, when S&P launched its index of 500 stocks, the company used other capitalization-weighted stock indexes with fewer stocks, dating back to 1923.)
The S&P Index shows a median return of 27.5 percent for Democrats and 27.3 percent under Republicans. The ten biggest rallies are evenly split between the GOP and Democrats, with the first term of FDR and Obama and both Clinton terms topping the list. The markets likely fully priced in the likelihood of a winner before each election, so when the ballots were counted, large investors had long since made their moves.
And contrary to public opinion, having some bumps in a bull market promotes buying opportunities. Since a pullback that lasted from April through June, investor sentiment has rebounded.
Notes Sam Stovall, chief equity strategist for S&P Capital IQ in its September 10 Outlook, "Since 1945, whenever the S&P 500 Index has recovered from a pullback (decline of 5 percent to 10 percent), it recorded an additional average price advance of 4.6 percent (median) and 7.8 percent (mean) in approximately six months. Therefore, if history repeats itself - and there's no guarantee it will - the S&P 500 could advance to between 1,500 and 1,550 before year end."
The S&P 500 Index was down 0.3 percent at 1,457 on Tuesday afternoon. The index is up about 15.6 percent so far this year.
Even if you cannot muster an ounce of passion for stocks right now, you should consider how they fit into your portfolio. If you still need growth and/or dividends, they should be a core holding to take advantage of market gains.
Are you focused on income and lower volatility? Consider the SPDR S&P Dividend ETF, which invests in the 60 highest-yielding stocks in the S&P 500 Index. A similar fund - the PowerShares International Dividend Achievers ETF - provides more global exposure.
Other than geopolitical gremlins in the euro zone and a major slowdown in China, the major roadblocks to a continuing rally are the health of the U.S. and European economies. Consumer demand and employment are the sputtering engines hobbling both regions at the moment. The "fiscal cliff" of the Bush-era tax cuts expiring at the end of the year is also a concern, although we may see some less-bovine movement on that after the election.
(The author is a Reuters columnist. The opinions expressed are his own.)