The bull market that began in March 2020 is nearing its second birthday, and—as often happens—people are questioning its staying power. Seemingly bad news abounds, and early 2022’s volatility tested many. Every bull market has a litany of bad news, big and small. Yet Fisher Investments thinks stocks are great at overcoming these obstacles—they are part of the proverbial “wall of worry” bull markets climb.
Even this young bull market has seen plenty of scary headlines. Since March 23, 2020, markets have withstood the US jobless rate hitting 14.7%, US GDP tanking, five COVID variants, new restrictions and lockdowns, as well as the Fed tapering its quantitative easing (QE) asset purchases in November 2021—and accelerating the process a month later. [i] Sometimes pullbacks accompanied the bad news. Yet overall, Fisher Investments’ research shows volatility was average. Last year, the S&P 500 rose or fell 1% only 55 days out of the year—a bit below the long-term average of 60. [ii] In our view, stocks did what they normally do during a bull market: They weighed fundamentals over the next 3–30 months. Through it all, global stocks returned an astounding 93.2% from the low through Valentine’s Day. [iii]
The 2009–2020 bull market was little different. Stocks hit their post-financial-crisis low in March 2009, yet the unemployment rate kept rising to 10.0% that November. [iv] Also that year, two of the “Big Three” US automakers declared bankruptcy, Dubai endured a debt crisis and the H1N1 swine flu pandemic started. Yet global stocks rose 30.0% for the full year. [v]
In 2010, fears of a double-dip recession bubbled up. Global markets experienced a “flash crash” and Greek debt concerns escalated. Stocks endured a correction (a sharp, sentiment-fueled drop of -10% to -20%) that spring, yet they still returned 11.8% that year. [vi]
In 2011, the Great Tohoku Earthquake and Tsunami sent Japan’s economy reeling. Meanwhile, the eurozone debt crisis spiraled into a regional recession and bear market, and a protracted debt ceiling standoff drove credit ratings agency Standard & Poor’s to downgrade the United States’ credit rating. Global markets endured twin corrections and flirted with bear market territory, but the recovery was swift, and the bull market continued. [vii]
Over the next nine years, stocks dealt with two Greek defaults, Russia’s invasion of Crimea, Fed tapering and rate hikes, China’s shock currency devaluation and more. Yet from 2010’s end through February 2020’s peak, global stocks returned 141.7%. [viii] There were four more corrections (one each in 2012 and 2015/2016 and two in 2018), but a bear market didn’t begin until unprecedented economic lockdowns in the West shocked markets in February 2020.
In Fisher Investments’ view, stocks are efficient and forward-looking. To paraphrase Benjamin Graham: In the short run, the market is a voting machine, but in the long run, it is a weighing machine. Scary headlines can spur near-term volatility as people react. But over the longer term, stocks weigh expected earnings over the next 3–30 months. They are very good at seeing through current events and assessing long-term profitability. Take Omicron. While there were scary headlines and some slight market swings when the variant emerged, markets’ reaction to it was their smallest yet. They had long since seen that it was lockdowns and restrictions—not the virus itself—that impacted markets, and restrictions had waned with each successive variant. Scare stories help lower expectations, setting an easier hurdle for reality to deliver positive surprise. Things simply going less bad than feared is often good enough for a bull market, according to Fisher Investments’ research.
The mere existence of negatives isn’t enough to end a bull market. In our view, bear markets start in one of two ways: the wall or the wallop. The “wall” occurs when stocks have finished climbing the proverbial wall of worry and euphoric investors ignore or dismiss deteriorating conditions. Or, a huge, shocking negative like the first COVID lockdowns wallops stocks before the journey up the wall is complete, knocking a few trillion dollars off global GDP. In our view, none of 2022’s fears currently qualify.
When investing for the long term, among the biggest challenges is to own stocks when headlines are blaring and markets are volatile. But Fisher Investments believes the real time to worry is when no one else does—which isn’t the case now.
Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return. This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.
[i] Source: Federal Reserve Bank of St. Louis, as of 02/15/2022.
[ii] Source: Global Financial Data; FactSet; as of 02/15/2022. Total number of +/-1% moves in the S&P 500 Price Index, daily, 01/01/1928–12/31/2021.
[iii] Source: FactSet, as of 02/15/2022. MSCI World Index return with net dividends, 03/23/2020–02/14/2022.
[iv] Source: Federal Reserve Bank of St. Louis, as of 02/15/2022.
[v] Source: FactSet, as of 02/15/2022. MSCI World Index return with net dividends, 12/31/2008–12/31/2009.
[vi] Ibid. MSCI World Index return with net dividends, 12/31/2009–12/31/2010.
[vii] Ibid.
[viii] Ibid. MSCI World Index return with net dividends, 12/31/2011–02/19/2020.