Lara Hoffmans
Into Perspective

A Look at Year Four

By, 03/15/2012

Happy birthday to the bull market, which turned three March 9. Mind you, anniversary dates are arbitrary—just like calendar months (and even years) or index levels hitting nice round numbers (Dow 13,000, S&P 1400). The S&P doesn’t care if it hits 1400, 1500 or 1872. What’s more, index levels can’t tell you where stocks go next.

It hasn’t been smooth sailing (then again, what bull market is?). We’ve had two big corrections (which are tough to live through, but normal in any bull market). And, this bull has contended near constantly with greatly exaggerated rumors of its death at the hands of some tiny European nations’ debt loads, “too-high” unemployment, a US double-dip (that never happened), contentious politics, etc.

Still, it’s worth noting since March 9, 2009, global stocks have annualized 26.3% (through March 14). Normal bull market years average about 21% annually. Recall, during 2009 and 2010, it was popular to forecast the beginning of a new era of slow growth, tepid earnings and sluggish stock returns. Except, even with 2011’s sideways action, this bull thus far has yielded above-average returns (i.e., the opposite of sluggish).

What about growth? Growth out of the recession trough was normal enough. Full year 2010 GDP grew 3%—smack-nose average (and normal). Growth slowed some in 2011, but history says that’s normal too—GDP typically has a healthy growth spurt then slows (which is still growth, not contraction) in the 2nd or 3rd year of a new cycle. Recall, too, GDP accelerated in Q2, Q3 and again in Q4 2011 to a perfectly respectably 3% annualized rate. This expansion isn’t setting records for fastest ever, but that doesn’t seem to indicate major trouble. Growth rates are normally variable in expansions. And global, US, developed world and Emerging Market GDP are all at all-time highs. Not too shabby.

And there seems to be fuel for ongoing growth. As of the close of Q4 2011, US corporate earnings have grown for 9 straight quarters with profits at record highs. Revenues have also grown for 9 straight quarters. Which is why US firms have a historic mountain of cash on their balance sheets (a feature that’s true globally). They’re not sitting on that cash but spending some of it—for one, on record levels of capital equipment spending. History says hiring typically follows.

And private hiring has already seen big gains. Then, too, consumers aren’t so “tapped out” as widely billed—consumer spending is at all-time highs. Incomes are rising. Little mentioned fact: Household debt service as a percent of disposable income is lower than it’s been in over 15 years.

So what’s in store for the bull market’s 4th year? Bull markets that carry through a fourth year (as this one likely does) historically have seen above-average equity returns. And more greatly exaggerated rumors of their deaths.

All return data from Thomson Reuters as of March 15, 2012.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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