The Wall Street Bull has gone berserk

Never in its 200-year history has Wall Street seen a bull market run this long. When will the bear wake up from his hibernation?

“If I ever got impeached, I think the market would crash.”

President Donald Trump went on his beloved Fox News amid all the commotion around his persona and tied his fate to the market’s.

But the market doesn’t give a hoot about Trump’s scandals. The president’s attempt to hold the market hostage with an “if I go down, the market goes down with me” threat has failed…

“A red-hot economy and positive market momentum are exerting more influence over investors than the drama in Washington,” says US colleague Greg Guenthner.

“As much as Trump might want the stock market to reflect his performance as president, stocks don’t appear to care who lives in the White House.”

Maybe it won’t be Trump’s impeachment, but surely something has got to stop the bull on Wall Street in its tracks!

Never before in its 200-year history has Wall Street seen a bull market that’s lasted this long.

Now the Wall Street bull has officially gone berserk, it’s waiting for the bears to wake up from their hibernation.

Longest bull run in history

When a bull attacks, he takes his opponent on his horns and lifts him in the air.

When a bear attacks, he grabs hold of his adversary with his claws and pushes him down.

The different methods bulls and bears employ to attack serve as a metaphor for the direction of a stock market.

If the market trend is up, we speak of a bull market. If it’s trending down, we’re in a bear market.

When US bank Lehman Brothers collapsed and investors expected more banks to go down, the bears ran riot on Wall Street.

By 9 March 2009 the bulls had chased the bears out of Manhattan again. Bears haven’t been spotted ever since.

The S&P 500 index, which tracks the 500 biggest publicly traded companies in the US, has gone 3,454 days without a major correction of more than 20%. That’s nine years, five months, and fifteen days.

On Wednesday the current uptrend officially scrapped the dot-com fuelled bull market of the 1990s out of the record books. That one had lasted 3,452 days.

Even now there’s no end in sight for the S&P’s upward trend.

Trade wars, protectionism, inflation, rising debt, new Trump scandals… The bull heeds none of that. It rages on like never before.

The bull has been spurred on mostly by tech companies, which have accounted for 22% of the gains. Apple, Microsoft and Amazon have been among the biggest drivers of the market’s success.

The last time the bears roamed around Wall Street shareholders got badly wounded. The share of Americans with money invested in the stock market has dropped from 65% in 2007 to 55% this year.

But it’s the investors that stayed in the game that have emerged victorious. Since the start of the bull market in March 2009, the S&P index has gained 320%.

The exuberance in the stock markets stands in sharp contrast to wage growth, which has largely stagnated over that same period.

While companies raked in higher profits, employees didn’t share in the spoils. Labour has been no match for capital.

“Shareholders win and non-shareholders lose,” as Morningstar’s vice-president of research John Rekenthaler told the BBC.

The bronze bull in New York’s financial district looks more menacing than ever.

What goes up…

Corporate earnings and low interest rates have done a lot to underpin the market’s stellar performance.

Companies have played no small part in this bull run either. They’ve bought back $4trn of their own shares and paid out $3trn in dividends since March 2009.

Stocks are also still on a sugar rush thanks to Trump’s tax cuts.

Last year the US government slashed the corporate tax rate from 35% to 21%, which has left corporate America with even more money.

But as they say on Wall Street: what goes up, must come down.

What will happen once the effects of the tax breaks wear off and global trade wars intensify?

It’s not likely to leave the market unaffected.

Goldman Sachs warns that S&P 500 earnings could take a 15% hit next year if the US trade war with China worsens.

Morgan Stanley sees a series of market positives turning into negatives.

World economic growth is slowing down, inflation is on the rise, the effects of tax cuts are being partly cancelled out by tariffs, and the Fed is speeding up its interest rate hikes.

And it sees more ominous signs…

The market is “in the midst of a topping process” as corporate credit markets peaked in January. Historically that means the stock market hits its peak roughly nine to 12 months later, says the US bank.

As Morgan Stanley’s theory points to the market topping out in the third or fourth quarter, it understandably concludes: “We think that this bull market has limited runway.”

For almost a decade the bull has reigned supreme over the US stock market. Though the bull still has some momentum left, bears have made it their habit to catch investors off guard.

Once the bear wakes from his hibernation in the US, it usually means bears in other markets are also on their way back.

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