This is the longest ever US bull market: what happens next?

22 August 2018

The US stock market has registered the longest bull market in financial history.

Today marks a milestone for the S&P 500 index (which tracks the performance of the 500 largest companies in the US): it has been in a bull market for 3,543 days. This means the market has avoided a fall of 20% or more during this period.

The US stock market is now in the longest bull run in history, surpassing the previous record that was set between October 1990 and the bursting of the tech bubble in March 2000.

However, this bull market (which started on 9 March 2009) lags its predecessor in terms of gains. So far, the S&P 500 index has risen by close to 320%, which compares to a cumulative gain of 417% between 1990 and 2000.

Source: Hargreaves Lansdown, August 2018

Tom Stevenson, investment director for personal investing at Fidelity International, says the idea that this bull run would become the longest in history would have been “laughable” a decade ago – when investor sentiment was at its lowest ebb during the financial crisis.

What today’s milestone means

While some may be tempted to call the top of the market, Mr Stevenson thinks investors shouldn’t necessarily worry about whether or not the market is at the peak of its cycle.

He says: “Bull markets do not die of old age; they die of fright. The length of a bull market is less important than the fundamentals of valuation and investor sentiment.

“On both counts it is reasonable to expect the US market to continue rising for a while yet. With earnings having been boosted by tax cuts, valuations are high but not excessively so.

“Meanwhile, this most unloved of all bull markets has left sentiment relatively subdued. The euphoria which typically marks the end of a bull market is notably absent this time.”

How UK investors have fared

The UK stock market has performed well since March 2009. However, the FTSE 100 hasn’t enjoyed the same consistency as the S&P 500. For example, it moved into bear market territory in January 2016 – after falling 20% from its April 2015 peak (see graph below).

Source: Hargreaves Lansdown, August 2018.

Laith Khalaf, senior analyst at Hargreaves Lansdown explains: “UK investors in US stocks have done particularly well from a combination of strong stock market returns and a weakening of the pound against the dollar. Returns since the financial crisis have been robust from the UK stock market too, though not to the same degree as in the US, and with more choppiness.

“The UK stock market is, however, cheaper than the US and has been shunned by UK and international investors alike since the Brexit vote. It now stands near its historical average in terms of valuation, it’s neither cheerfully cheap nor prohibitively expensive, which means it can move in either direction without defying the laws of statistics.”

What lies ahead for markets

It is impossible to predict where markets will go from here. Some investors may naturally feel nervous about valuation levels. However, unprecedented central bank intervention in the form of quantitative easing or ‘money printing’ make it difficult to compare this bull market with historic precedents.

Mr Khalaf comments: “Trying to time the market is notoriously difficult, and is just as likely to leave you out of pocket as quids in. Investors who are concerned about market valuations can take the simple step of setting up a monthly investment plan, which still keeps their savings ticking over while taking advantage of any market dips.”

Mr Stevenson adds: “Even the length of the bull market may be misleading. If you treat the bear markets in 1987 and 1990 as painful corrections rather than real bear markets, you can easily see 1982-2000 as one long bull market. During that period, the S&P 500 rose from 102.4 to 1,527.5. By comparison, the recovery from the dark days of 2009 pales into insignificance.”

If you are concerned about how to protect your investments from a potential market fall, read our guide about how to prepare your portfolio without sacrificing growth.

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