The bull market celebrated its seventh anniversary last Wednesday, making it one of the longest stock rallies in history. It's a shame so few investors liked it.
This bull market is so old it's eligible for AARP membership, said Howard Silverblatt, senior index analyst for S&P Dow Jones Indexes. The average bull market lasts less than 59 months. This one is 84 months old. (For the record, the longest bull market stretched from October 1990 to March 2000).
The bull has driven the Standard and Poor's 500 stock index up 189.6% since March 9, 2009, including reinvested dividends, according to Morningstar, the Chicago mutual fund trackers. In contrast, the MSCI Europe, Australasia and Far East Index has gained 120.2% and the Barclays 7-10 Year Treasury index has gained 38.3%.
LUKEWARM INVESTORS
Despite its gains — and its long life — most investors have been lukewarm toward the stock market since its rebirth in the aftermath of the 2007-2009 financial crisis. From March 2009 through January 2016, investors have yanked a net $189.7 billion from open-ended stock funds.
But that's just part of the picture: While investors have left open-ended stock funds generally, they have fled U.S. stock funds like hikers stumbling on a cobra nest. Investors have sold a net $623 billion from U.S. stock funds since March 2009, according to the Investment Company Institute, the funds' trade group.
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Granted, the net redemptions from open-ended funds has been more than offset by the net purchases in exchange-traded stock funds over the same period. Nevertheless, inflows to stocks via funds have been sluggish by historical standards, and particularly by bull-market standards. “You could call it the Rodney Dangerfield market,” said Sam Stovall, chief investment strategist at S&P Global Market Intelligence. “It gets no respect.”
One reason: Two soul-searing bear markets in the past 15 years, that's a relative historical oddity. “You typically see a 25-year separation between 40%-plus down markets,” Mr. Stovall said.
Usually, those big bear markets take a generation to exit the public's memory. The last time there were two big bear markets back-to-back was in the 1970s. “And back then, relatively few people were investing in the stock market,” said Brad Klontz, a financial psychologist.
FED MANIPULATION
Another reason: A deep suspicion that the markets were manipulated by the Federal Reserve's easy-money policies the past eight years. While this is true — low interest rates are usually good for stocks — it's not the whole picture. Corporate earnings have risen 282% since the start of the bull market, even more than stock prices as a whole, Mr. Stovall said.
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The bull market has been uneven, to say the least. Energy stocks, which have had tremendous losses the past 12 months, have gained an average 5.54% a year since the bull began in 2009, says S&P's Mr. Silverblatt. Consumer discretionary stocks are up 25.31% a year — thanks, in part, to falling energy prices.
Value funds — those that look for beaten-up stocks that Wall Street hates — have
fared relatively well in the bull market. The three top-performing open-end funds for the bull market all have a value tilt:
• PIMCO RAE Fundamental Plus (PIXAX), up at an annualized rate of 27.28%.
• Undiscovered Managers Behavioral Value (UBVLX), 26.42%
• Rydex S&P 500 Pure Value (RYVVX), up 26.39%
Not surprisingly, some of the worst funds have had a growth tilt. Case in point: AMG Managers Brandywine Advisers Mid-Cap Growth (BWAFX), up just 5.77% for the bull market.
INFLATION
Bull markets, like economic recoveries, don't die of old age. In the normal course of events, rising wages reduce corporate earnings and the Federal Reserve
starts to raise interest rates to ward off inflation. While inflation remains muted, the official unemployment rate is at 4.9%, and there are a high number of discouraged workers who have stopped looking for work altogether.
The old adage is that the Fed takes away the punch bowl just as the party gets started. That's not happening, despite the Fed's recent hike in the key Fed funds rate. “The Fed is just refilling the punch bowl more slowly,” Mr. Stovall said.
More importantly, bull markets tend to end after a burst of enthusiasm — which just doesn't seem to be evident these days, in part because the market remains below its May 2015 peak. “A sleeping bull doesn't rouse the average in-vestor,” says Gary Schatsky, a New York financial planner.
If there is irrational enthusiasm, Mr. Klontz hasn't noticed it. “I don't see the same levels of enthusiasm we saw in 2006 or 1999,” he said. “Clients are saying, "Just take care of it.'”
