Wall Street is a business of measurement, and lately it’s become focused on detailing several major milestones that gauge how far this market has come.
Here are a few that are, or will soon be, subject to plenty of chatter among investors in the slow days of deepest summer:
- Measured in the conventional way, this bull market in the coming weeks will become the longest ever recorded.
- September will mark a decade since the failure of Lehman Brothers touched off the market crash that accompanied the crescendo of the global financial crisis.
- Apple last week became the first U.S. company to reach $1 trillion in market capitalization.
These reflect some mix of calendar quirk and arbitrary statistical threshold, for sure. But the fact that they are getting attention also reveals a broader preoccupation with the distance traveled and the advancing age of this financial cycle, with an implicit suggestion that these signals are building to some culmination of this bull market rather than serving as mere markers along the way.
Assessing each of these milestones in turn, it leads to a more nuanced view of how far this cycle has traveled and where it might lead next.
Bank of America Merrill Lynch is among those noting that in less than three weeks, the current bull market will rank as the longest of all time, eclipsing the climb that spanned most of the 1990s. This ultimately will require that the Jan. 26 record high in the S&P 500 does not prove to be the ultimate peak for this bull phase.
But it also leans on a fairly simplistic and arguably unhelpful method for dating and classifying bull and bear markets: So long as the S&P fails to decline at least 20 percent from a high following at least a 20 percent gain, a bull market is considered ongoing.
This approach has the virtue of transparency and ease of use, but it obscures what many veteran investors view as important severe pullbacks since 2009 that reset market valuation and risk appetites.
Aside from the 15-percent-plus gut checks in 2010 and 2011, the nasty downturn of 2015-2016 led most global indexes into full-fledged bear markets, and most U.S. stocks lost more than 20 percent. While not a lasting bear market, this purge arguably turned back the clock somewhat in gauging the functional age of this bull.
And this has been an unusually long, drawn-out cycle – one that has gotten an unusual jolt of rapid corporate-profit growth nearly a decade after the last recession. So it’s particularly hard to place it on the usual actuarial tables.
The 10th anniversary of the September 2008 implosion of Lehman — which turned a bear market in stocks into a 55 percent bloodletting by March 2009 – tells a similar story. Yes, the recovery has been profound and has lasted a pretty long time. But the distance covered over that period is not particularly remarkable in the grand scheme.
The 10-year trailing annualized return for the S&P 500 right now – dating to just six weeks before Lehman failed – sits at 10.8 percent, including dividends. That’s not bad, just about the long-term average yearly gain even for someone who bought stocks just in time for them to be cut nearly in half over the following seven months.
Still, this hardly represents an extreme level of 10-year returns that indicates a quick or dramatic give-back is due. Typically, at the end of a major bull market, the trailing 20-year annual gain is approaching 20 percent.
(But take note, the starting point matters a lot here. If the S&P were simply to stay at the current level of 2,840 for the next seven months, to the 10th anniversary of when it bottomed at 676, then its trailing annual return for the decade would for a brief period be pushing 19 percent: closer to a typical culminating performance for a bull market, but nothing that would dictate a certain death of the bull.)
Apple reaching $1 trillion is probably the easiest milestone to dismiss as a fun curiosity rather than a foreboding inkling of imminent doom.
The new, 13-digit market-value mark is almost wholly a function of the steady climb in overall market values, general inflation and Apple’s enormous economic power. Apple at $1 trillion represents a bit more than 4 percent of the S&P 500’s value. The largest stock in the market has often, through history, commanded an even larger piece of the market.
Microsoft reached its tech bubble peak of $620 billion in late 1999, and represented a bit more than 4 percent of the S&P. Adjusted for inflation, Microsoft’s 1999 peak translates to around $950 billion today. And in ’99, Microsoft’s valuation stood at 30 times its revenue and a whopping 70 times trailing earnings. Apple, at $1 trillion, fetches less than 4 times revenue and 18 times the past year’s earnings.
If you think the market is too high than maybe Apple is scraping the ceiling for size right now, with two or three more tech giants not far behind it. But Apple’s arbitrary new numerical threshold tells us little, in itself.
Make no mistake: If, somehow, through some unfolding economic weakening or market shock, the January market high proved to be the ultimate peak for this bull market, it would be no grave injustice to investors. Valuations, stock returns and investor sentiment were suitably high to serve as the starting point for some kind of meaningful retrenchment.
It sits there in the recent past as a plausible top, but still not a probable one. Profit growth, credit conditions and U.S. economic data are simply not playing along with the “imminent downturn” script yet. And the age of the bull or the size of the biggest company don’t override this fact.
Wrapping it all together, we have a market that no doubt has more gains in the rearview mirror than it has up ahead. But passing these landmarks doesn’t suggest it’s heading for the end of the road very soon.
Originally published at CNBC