By John Wasik
Sept 18 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 Sept. 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
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
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
Notes Sam Stovall, chief equity strategist for S&P Capital
IQ in its Sept. 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.