Beyond Bulls & Bears


Can Anything Throw the Nine-Year-Old US Bull Off its Stride?

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The current US equity bull market turned nine years old on March 9, 2018. That’s the second longest run without a correction of 20% on record.1

It’s natural to wonder if the tide is going to turn. As Sir John Templeton famously said: “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”

And, as many pundits have noted, bull markets don’t tend to die of old age. However, in light of heightened US market volatility of late, many investors may now be wondering what could cause a sustained US equity market downturn.

A Bull Is Born

One could certainly argue the current US equity bull market was born on pessimism. As the chart below shows, it started on March 9, 2009, as the global financial crisis was coming to an end. From the depths of the crisis, the S&P 500 Index rose by more than 300% to an all-time high of more than 2,800 in January of this year.2

Not Without Blips, But the Bull Shrugged Off Corrections

In the past nine years, the current US bull market has had some notable corrections, defined as a decline of 10% or more.3 It’s weathered the beginning and end of US quantitative easing, and crises in other parts of the world.

For example, the S&P 500 Index fell 19% during the European debt crisis from April to June 2011.4 However, the US equity market proved to be resilient and finished 2011 up 2% for the year.5

Even the selloff in early February of this year—when the S&P 500 Index saw its largest one-day percentage fall since 2011—didn’t seem to throw the bull much off its stride. US stocks generally regained some ground later in the month.

However, many market observers are still watching to see how some of the factors that were said to drive the February US selloff, such as higher inflation expectations and a rise in interest rates, play out.

How Might a More Aggressive Fed Impact US Stocks?

At its December 2017 meeting, the US Federal Reserve (Fed) raised its benchmark interest rate, the fed funds rate, by 25 basis points to a range of 1.25% to 1.5%. At the time, the market was slightly sceptical of the Fed’s forecast, but seemed to be coming around a bit.

Accelerated inflation in 2018 could prompt the Fed to tighten monetary policy at a faster pace, though the Fed has made no indications that it is about to do so.

At his swearing-in as Fed chairman, Jerome Powell said the “Fed’s approach will remain the same. Today, the global economy is recovering strongly for the first time in a decade. We are in the process of gradually normalising both interest rate policy and our balance sheet.”

Taking Out the Emotion

Nobody can predict when the current US equity bull market will end. The longest bull market in US history lasted from October 1990 to March 2000.6 It ended when the Dot-Com bubble burst, after valuations for tech stocks disconnected from earnings and reality.

That’s why our investment professionals stress the importance of a disciplined investment approach that takes the emotional element out of investing.

Here’s a fun behavioural finance video on the concept of “herding” that explains in a more colorful way why following the crowd can be a bad idea.

Views You Can Use

Here’s What our Portfolio Managers are Saying:

“It’s important to stress that while markets can be volatile in the near term, over the long term, they reflect the underlying fundamentals of companies and countries. In our view, long-term structural growth drivers are still in place, and a slight rise in interest rates or inflation should not have a significant detrimental impact,” Stephen Dover, February 7, 2018.

“There is a lot of complacency, a lot of financial engineering has been built upon some of those assumptions of low yields and low volatility. When that comes unwound, we just don’t know what the ripple effects can be. And I think this is one of the dangers of Fed policy being dovish, was that you build up these unknowns and that is a concern. So to us, we don’t know exactly how those dominoes will fall, but we know one of the triggers will probably be higher [interest] rates.” Michael Hasenstab, February 15, 2018.

“We think 2018 may be a more challenging year for stocks overall. However, we believe it can create greater opportunities for individual stock selection. We anticipate that non-US companies with compelling secular growth stories and unassailable competitive advantages can standout regardless of how the broader markets perform over the course of the year,” Coleen Barbeau, December 26, 2017.

Have Your Say

What do you think could cause the US equity bull run to end? Go to our Twitter page @FTI_Global where you can cast your vote, and see what others think!

The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

Data from third-party sources may have been used in the preparation of this material and Franklin Templeton Investments (“FTI”) has not independently verified, validated or audited such data. FTI accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user. Products, services and information may not be available in all jurisdictions and are offered by FTI affiliates and/or their distributors as local laws and regulations permit. Please consult your own professional adviser for further information on availability of products and services in your jurisdiction.

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1. Source: S&P Dow Jones Indices. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses and sales charges. Past performance is not an indicator of future performance. See for additional data provider terms and conditions.
2. Ibid.
3. Ibid.
4. Sources: Bloomberg; S&P Dow Jones Indices. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses and sales charges. Past performance is not an indicator of future performance. See for additional data provider terms and conditions.
5. Source: S&P Dow Jones Indices. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses and sales charges. Past performance is not an indicator of future performance. See for additional data provider terms and conditions.
6. Ibid.