The current bull market in US stocks started in March 2009 at the height of the global financial crisis and is the longest in recent history, beating the rally between July 1962 and May 1970 by over four years.
At the time of writing, the bull market is still going. US stocks are up more than 400 per cent since their March 2009 low.
It is not only a US phenomenon; UK, European, emerging markets and Japanese stocks have all risen more than 150 per cent in the same period, according to data from Refinitiv.
Stock markets continue to rise despite a difficult economic and political backdrop. The rumbling trade war between the US and China and Brexit are among the major issues facing investors.
Why are stock markets rallying?
Stocks are benefiting from the favourable monetary policy that’s been in place since the financial crisis.
Central banks in developed markets have been keeping interest rates low and making it cheaper to borrow money to boost the economy.
For instance, interest rates in the US are currently 1.75 per cent, down from 5 per cent one year prior to the financial crisis in 2007. The US Federal Reserve has cut rates twice in 2019, back-tracking on its rate raising policy amid concerns of an economic slowdown.
The story is the same for other developed economies. The UK interest rate is currently 0.5 per cent, down from 5 per cent in 2008, while interest rates are negative in Japan and the eurozone.
The effect of low interest rates has driven down the yields on other investments such as government debt. The US 10-year Treasury currently yields 1.8 per cent, while the UK 10-year gilt yields 0.6 per cent.
That has forced investors to search for higher returns in riskier areas of the market such as stocks. The US S&P 500 yields 2 per cent, for example, while the UK’s FTSE All-Share index yields 4.1 per cent, according to data from Refinitiv.
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So how does this bull market compare to those of the past?
The chart below shows the six biggest bull markets in US stocks since 1962 and their subsequent bear markets.
In this example a bull market is defined as a rise of 50 per cent or more over a period lasting more than six months. A bear market is defined as a fall of 20 per cent or more that lasted at least three months.
Can the bull market continue?
Johanna Kyrklund, Chief Investment Officer and Global Head of Multi-Asset Investment, said:
“Markets have been increasingly focused on two interlinked but somewhat offsetting trends: weakening global growth and ample central bank liquidity.
“We continue to see evidence of weakness in the global manufacturing cycle and central bank liquidity has pushed markets to even more expensive levels.
“However, markets have moved to price some of that cyclical risk in that yields have rallied and defensive equity sectors have outperformed.
“If manufacturing data stabilises or if political concerns on trade or Brexit are alleviated, we could see a recovery in cyclical assets.
“As a consequence, we continue to tread a careful line between benefiting from the liquidity environment without taking too much cyclical risk.”
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