This week the U.S. stock market crossed the five year anniversary of the post 2008-09 financial crisis low point.
On March 9, 2009, the S&P 500 touched 666 before closing the day at 676, which set the decline from the market previous high in October 2007 at a devastating 56 percent.
March 9, 2009, also is the day that began the current bull market, and index has now gained roughly 177 percent (not including dividends) since this fateful day.
The sheer amount of economic drama and turmoil occurring over these past five years has been staggering: Quantitative Easing programs by central banks worldwide, numerous European financial calamities, Japanese earthquakes and deflation, booms and busts in the emerging markets, and social unrest and political revolutions in many places on the planet.
With the exception of some intense volatility in 2011, the U.S. stock market has climbed this wall of worry with impressive determination.
Anniversaries have the natural effect of making us look backwards to contemplate what we’ve accomplished and endured. This one/ however, has me looking forward in an effort to discern just where we could be in this cycle and to answer the question: how long can it last?
According to S&P when looking back over the last 70 years of data, the average bull market as measured from the trough of the previous bear market to the next market peak has been 66 months, and the average appreciation during these periods has been 172 percent. But it’s important to realize, these are average numbers with some bull market periods lasting as long 148 months.
Bull markets do not just end, they tend to be disrupted recessions, economic policy mistakes and financial crises.
Rationally we know recession will eventually return. But with consumer and business debt levels at healthy levels and a Federal Reserve intent on keeping rates low for some time to come, Americans appear to have the ability to spend a while longer, making recession look unlikely during 2014.
The major economic policy change occurring right now is the reduction of the Fed's bond buying Quantitative Easing program. This policy, however, has been accepted by markets and is actually being perceived as a sign of growing confidence.
I suppose the mid-term elections in November could create an opportunity for policy disruption, but it now looks likely the Democrats will either diminish or lose their Senate majority, further crippling the culture in Washington and limiting the amount of damage that can be done there.
Which leaves us with a potential financial crisis. When we look around the world, the candidates are there. China’s debt, emerging market turmoil, the Russian ruble all come to mind. None of these candidates, however, are here, and after a long period of healing the U.S. is definitely now the strongest dog in the pack.
Investment strategy cannot be built around predicting financial crises. It’s been five years since the traumatic events of the subprime meltdown and Lehman collapse. While it’s prudent to never forget, it’s also wise to appreciate just how far we’ve come.