After the markets steadily fell over the second half of 2008,
the first trading day of 2009 brought a dose of investor
optimism, with the S&P 500-stock index rising 3% to close at
932. Hopes of a sustained rebound were quickly dashed as the
index went on to finish below 700 just a couple of months later.
Even the boldest investors, piling their final funds into the
market in search of deep value, were about ready to throw in the
And then, the clouds suddenly parted on the morning of March 10,
2009, and stocks began to climb and climb. A little more than
four years later, the S&P 500 has racked up a stunning 150%
gain. Yet as the market moves ever higher, investors have grown
The rally hasn't come on the heels of a robust economic
expansion. Instead, the U.S. economy muddles along, as key
trading partners move in and out of intensive care. Does that
mean stocks are now overvalued in the face of considerable global
headwinds? Well, a closer look at the numbers can give a sense of
whether this bull has more room to run -- or if it is growing
tired. Here are 10 ways to look at this market.
1. 25% vs. 1%
In the past year, the S&P 500 has risen roughly 25%, even as
aggregated 12-month trailing profits for companies in the S&P
500 rose roughly 1% in the second quarter of 2013, compared with
the prior 12-month rolling period. The outlook for profit growth
in the next few quarters also calls for aggregated
) growth in the low single-digits.
2. 14.5 vs. 17
A year ago, the S&P 500 traded for about 14.5 times trailing
12-month profits. That figure now stands at 17 times trailing
profits. That's slightly above the 10-year average, according to
Bespoke Investment Research. Looking at the past 85 years' worth
of data, bull markets tend to begin with an average trailing
price-to-earnings (P/E) ratio of 11.1 (which was the case at the
end of 2008). And bull markets tend to end, on average, when the
figure reaches 18.2. By that math, we have less than 10% upside
remaining until we hit the upper end of the average. Then again,
some argue that P/E ratios simply don't matter. At the start of
1998, the trailing P/E on the S&P 500 stood at an already
elevated 20 -- but still moved up to 30 in the next two years.
Yale University professor Robert Shiller prefers to look at
earnings in the context of economic cycles, developing what he
calls the cyclically adjusted price-to-earnings ratio, or
CAPE. The technical explanation: "The numerator of the CAPE
is the real (inflation-adjusted) price level of the S&P 500
index, and the denominator as the moving average of the preceding
10 years of S&P 500 real reported earnings, where the U.S.
Consumer Price Index (
) is used to adjust for inflation," according to his website.
As of July, this figure stood at 23.8. That's up from 20.5 at the
end of 2011 and 15.3 at the end of 2008. The current reading is
the highest since January, 2008, when it stood at 24. For a bit
of perspective, the CAPE exceeded 40 back in 1999 and 2000, so
we're hardly in frothy territory.
Our current bull market has been underway for 1,600 days. From
1928 through 1973, the average bull market lasted 1,140 days.
From 1974 through 2007, the average bull market lasted roughly
2,650 days. By that measure, this bull market could last three
5. $1.42 trillion
That's how much money is now invested in exchange-traded funds (
). That compares to $531 billion at the end of 2008. The 170%
increase in ETF assets since the end of 2008 is roughly double
the rise in the S&P 500 in that time, implying that inflows
into ETFs, and not just asset appreciation, are a key hallmark of
this bull market. It also means that traditional stock picking is
losing favor to sector, industry and thematic styles of
investing. Meanwhile, investors still had $13 trillion in mutual
funds as of the end of 2012, according to the Investment Company
Institute, putting to rest the notion that "ETFs are killing
After shrinking 2% in 1982, the U.S. economy roared to life,
averaging 5.5% GDP growth over the next three years, and then
averaged 3.5% annual GDP growth over the next 15 years, according
to the Bureau of Economic Analysis (BEA). That coincided with an
18-year bull market (if you exclude a brief correction in 1987).
Coming out of the recession of 2008, the U.S. economy has had a
hard time generating growth in excess of 2% (with the exception
of a few quarters in 2012). This year, GDP has grown just 1.1% in
the first quarter and 1.7% in the second quarter, which helps
explain why corporate profit growth has largely stalled out.
The percentage of sales generated by companies in the S&P 500
from foreign sales offices peaked at 48% in 2008 (after rising
from 43% in 2005). That figure now stands at 46% after dropping
for four straight years. In effect, U.S. economic activity, along
with corporate profit growth, has been clearly hampered by
troubles in Europe. To the extent that China's woes deepen,
affecting large U.S. export markets such as Australia and Brazil,
the export figure may keep dropping. Then again, an eventual
rebound in Europe could help reverse the trend and provide a key
growth tailwind that extends this bull market.
That's the average dividend yield on the S&P 500, according
to IndexArb.com. Though companies have been boosting dividends at
a rapid pace, they can't keep up with the surging bull market, so
the dividend yield has been steadily falling. At the start of the
bull market in 1982, the dividend yield on the S&P 500 stood
at 6.7%. Today, there are only two companies in the S&P 500 (
Frontier Communications (
) that have a yield above 6.7%. The S&P 500's dividend yield
hit an all-time low of 1.4% in 1998, as market gains outpaced
dividend growth by a wide margin.
9. $1.27 trillion
That's how much cash was parked on the balance sheets of
non-financial firms in the S&P 500 at the end of 2012,
according to FactSet Research. The pile of cash grew 6.1% last
year, despite the fact that share buybacks and dividends are
growing at a 10% pace. The most important implication for this
bull market: Any sharp market pullback would be swiftly met
with increased buybacks.
That's the number of companies in the S&P 500 that are
expected to boost sales at least 10% in 2014. And only 21 of
those are expected to generate at least 20% revenue growth in
2014. Fully 40 companies in the S&P 500 are expected to see
revenues fall in 2014.
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