Fisher Investments Editorial Staff

Many Happy Returns!

By, 03/10/2011

Story Highlights:

  • The bull market turned two on Wednesday, and considering 2009’s bleakly pessimistic sentiment, markets have come a long way.
  • The last two years have seen many positives—and the notable absence of some widely expected negatives.
  • Where do we go from here? Likely sideways and in a choppy fashion.
  • 2011 is likely fine overall and may set the stage for the bull’s next up-leg.

Wednesday, March 9, 2011,marked the global bull market’s two-year anniversary—an appropriate moment to look back on the last two years and consider what might be in store for the foreseeable future. 

First, recall the pervasive mood in March 2009: There was an overwhelming sense the US economy and markets would never recover—perhaps we were entering a new Great Depression or a Great Recession or a new era of below-average growth and lackluster market returns. 

But since the global bear market bottom on March 9, 2009, here’s what happened (contrary to widespread fears): 

  • Global stocks rose roughly 75% between March 9, 2009,and the bull’s first birthday*—an outcome unthinkable to many at the time.
  • Global stocks are now up nearly 105% since the bottom,* and the S&P 500 is up almost 104%. Stocks have doubled! That’s roughly 44% annualized.
  • Global and US GDP are at all-time highs.
  • While seemingly sluggish, US employment data indicate improvement.
  • US manufacturing and services PMIs have shown strong growth—for example, the Chicago PMI rose to a 22-year high in February,and the latest national ISM Manufacturing Index reading matched the peak of the last cycle (May 2004), which was the highest level since 1983.
  • Myriad other economic indicators—domestically and globally—now suggest we are past the point of recovery and firmly in expansionary territory.

There are also notable things that have not happened in the last two years. For example:

  1. There’s been no systemic financial failure. Data indicate the banking system globally—though at the epicenter of (and the worst victim of) the credit crisis and bear market—is in much better health and recovery continues.
  2. Though widely predicted, there’s been no double-dip recession—not in the US, EU, or globally. And given the time that’s passed since the recession’s end, there won’t be one. Any new downturn would be considered a new recession, and at this point, we don’t see that as very likely in the near term because this growth cycle globally is fundamentally on firm and improving footing.
  3. The PIIGS did not irrevocably end the euro. They did betray some serious flaws in the current European Economic & Monetary Union (EMU) framework, but the union persists and is in fact trying to find a more permanent way forward. (And whether it succeeds or implodes won’t be a 2011 issue.) Though the PIIGS sparked a correction in 2010, markets recovered, and the year ended up nicely.
  4. The euro didn’t implode, nor did the US dollar. And (to the bemusement of some) it’s still the world’s reserve currency (and likely to be for some time).

So what to expect moving forward? The initial surge off the bottom over the last two years—as is typical of new bull markets—will slow in 2011. Sentiment improved (for some) during the back half of 2010, helping boost prices, but we now have strongly bifurcated sentiment—a divided group of both gung-ho bulls and dug-in bears. The strong bearish presence argues against stocks falling sharply in 2011, but the emergence of optimists helps mute returns in what will likely be an overall sideways market (The Great Humiliator at work!). This isn’t unusual in an ongoing bull’s third year. What’s more, a bumpy, sideways year helps shake out the optimists. We wouldn’t be surprised at year’s end to see the sentiment balance tip back in favor of the bears, who may in turn be surprised by a strong second up-leg of the bull. 

Could there be hiccups along the way? Of course. We’ll likely see many of the same fears rehashed repeatedly. For example, the PIIGS/EMU issue isn’t resolved, and folks are still spooked by muni debt. And there will be fresh concerns, like popular uprisings across the Middle East possibly impacting global oil supply security (which is both a new and a very old fear).These and other issues could add to volatility or even cause a pullback or correction. 

But volatility and corrections are normal—no bull market year is pristine. And this year, we think volatility is just part of the third year DNA—expected and not producing a drastically bad year. In fact, as we’ve said before, for those able to identify positive fundamental drivers at the industry, sub-industry, and individual stock levels, this could be a pretty fine year. 

So happy birthday, bull market! Long may you run! 

*As measured by the MSCI World Index. Source: Bloomberg Finance, L.P.

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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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