Happy Birthday Bull Market! (Just Don’t Forget To Read The Fine Print)

Happy Birthday Bull Market! (Just Don’t Forget To Read The Fine Print)

At the end of the day, a gain is a gain.

Money is money.

“It is what it is.”

So if you rode the equity wave from 2009 to 2017 and then cashed out, content to ride off into the proverbial sunset, cash money in hand, then you needn’t worry about exactly how we got to where we are today.

But if you’re like so many ‘Sharons‘, you’re still long or worse, you just recently got long along with all the other retail investors who together have dumped something on the order of $124 billion into ETFs YTD. For you, how we got here matters. That is, you need to make sure you know what you just bought into. You need to read the fine print.

Well, as we celebrate the 8th year of this bull market (the second longest in history), Goldman has some rather disturbing news: 71% of the gains during what we might call the “2nd phase” of this rally are attributable not to earnings growth, but to investors paying more for every dollar of (stagnating) profits. Here’s more.

Via Goldman

Yesterday marked the 8th anniversary of the current bull market, making it the second-longest on record. On March 9, 2009, the S&P 500 index traded at 677 and it now stands at 2365, reflecting a price gain of 250% or 17% annualized (19% annualized with dividends). Happy Birthday indeed!

But the current bull market is really a tale of two sub-cycles (Exhibit 1). During the first phase (March 2009 to April 2011), the market rallied on the back of a rebound in earnings from the depths of the Global Financial Crisis. Higher profits accounted for 66% of the index’s 102% gain while P/E multiple expansion explained just 17% of the rally (faster expected EPS growth contributed the remainder; see Exhibit 2).


In 2011, the US only narrowly averted defaulting on the national debt. As Congress dithered over the debt ceiling, the S&P 500 plunged by 19%, just missing the 20% threshold typically used to define a bear market. Hence, some investors debate over whether the current bull market started from the low in 2009 or after the debt ceiling debacle in 2011.

Since the market low of 1099 in 2011, the S&P 500 has climbed by 115%. This second phase of the bull market has lasted more than five years and has been driven mostly by an increase in valuation rather than the level of profits. The adjusted P/E multiple climbed to 18x from 10x, explaining 71% of the rise in the index. Higher earnings accounted for just 28% of the rise.

After the inflation in P/E multiple, the S&P 500 now trades at the 90th percentile of historical valuation relative to the past 40 years. Current consensus forward P/E of 18.1x is the highest level since 1976 outside of the Tech bubble. The median stock trades at the 99th percentile vs. history.

So yes, “Happy Birthday” bull market!

Just don’t forget to…



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