As President Barack Obama took office in January 2009,
investors were in despair. An economy in dire straits had already
led to a free-falling market, and things only got worse in the
early months of the year.
Then, quite suddenly, everything changed. The fear-based
selling had exhausted itself. And on March 9, 2009, the S&P
500 would reverse course.
The bull market that ensued has surprised even the most
bullish investors. Few would have guessed that an economy that
never truly recovered from the Great Recession of 2008 would be
capable of fueling a 193% gain in the stock market over the next
five and a half years.
Here's a look at five surprising facts about this unusual bull
|1. Nobody Wants To Lock In
In almost any bull market, you'll see a stretch of
gains, followed by a modest pullback, which is then
followed by more gains. But in this market, there are no
Though the S&P 500 repeatedly moved above and
below its 150-day moving average (
) in the early stages of the bull market, the market now
appears to be on autopilot, inching steadily higher with
nary a pullback. The fact that the S&P 500 has now
remained above its 150-day MA for more than 18 months is
truly impressive. Said another way, the S&P 500 has
not had a four-day losing streak thus far in 2014. Yet in
prior years of this bull market, we saw such pullbacks
roughly nine times per year,
according to Bloomberg
|2. Nobody Wants To Go Short
Shares held by short sellers represents about 2% of
the stock market, according to financial research firm
Markit. That's close to the lowest level since 2006.
This recent article in Fortune
suggests that the dearth of short-selling is a sign of
It's not. It's a sign that short selling has gotten
Many investors that had been inclined to hedge their
portfolios with short positions have been burned too many
times in this bull market -- and they have no desire to
get in front of a moving train like
Chipotle Mexican Grill (NYSE:
. The problem with a lack of short selling is a key
valuation corrective is gone from the market, and stocks
can run in an unimpeded fashion to levels that become
hard to justify.
Equally important, such stocks can crater badly if bad
news emerges and their valuations snap back like a rubber
|3. Investors Are Out Of Cash And
Borrowing To Buy More Shares
The amount of
on the New York Stock Exchange rose to $464.3 billion in
June, right near the all-time high set in February.
Over the past two years, this figure has soared 63%,
or $180 billion. In that time, the S&P 500 has risen
43%, implying that margin debt -- in relation to the
market's total value -- is moving into the risk zone. The
risk, as we saw in 2000 and 2001, is if the market starts
going down and margin debts need to be repaid at an
Source: NYX data
|4. No More Corrections
According to Barry Ritholtz, who pens the terrific
The Big Picture
blog, bull market rallies (since 1945) tend to last an
average of 221 days before we see a 10% pullback. And in
those rallies, the market tends to move up about 32%.
Well, in the current market, we haven't seen a 10%
pullback in more than a thousand days -- and in the three
years since, the S&P 500 has risen 77%.
Investors are starting to forget what a correction
feels like, and if one occurs in coming quarters, it will
be interesting to see if it is viewed as a buying
opportunity... or a reason to suspect that this era of
terrific gains has come to an end.
|5. Earnings Growth Lags The
Over the past few years, the S&P 500 is rising at
a noticeably faster pace than underlying corporate
As a result, the market's price-to-earnings (P/E)
ratio moves ever higher. Indeed the gains thus far in
2014 may already exceed the full-year profit gains for
S&P 500 companies. This doesn't signal that the
market must drop, but if history is any guide, it
suggests that future market gains will be much more muted
to give earnings time to catch up.
S&P 500 Earnings Growth vs. Market Gain
Full-year profit estimates will come under fresh
attention in five or six weeks: "On average, September is
the month with the most negative revisions, as if people
get back from summer vacation, go to some conferences,
and recognize that dialing back their estimates is
prudent," note analysts at Morgan Stanley.
As it stands, analysts currently anticipate aggregate
profit growth to be less than 10% this year, and if they
revise that figure lower in September, as Morgan Stanley
predicts, then the market gains thus far this year have
likely already exceeded profit growth.
Risks to Consider:
A key hallmark of this bull market is a lack of stop signs.
Few exogenous events seem to be capable of knocking the market
off its perch. Yet as the market soars ever higher, Nassim
Nicholas Taleb's notion of "
" comes to mind. These unforeseen events typically appear out of
Action to Take -->
Holding an increasing level of cash in your portfolio is no
crime. Though you may not fully capture further market gains if
you have only a 60% or 70% weighting in stocks, you will at least
preserve some capital in a market pullback -- and equally
important, you'll have reserve financial firepower to take
advantage of such dips.