US equity rally differs from market bubbles

The current bull run being seen in US equities is missing the hallmarks of previous market bubbles.

Since the beginning of 2009, the S&P 500 has returned about 12.5% on an annualized basis before dividends, which pales in comparison to the returns experienced in the 1980s and 1990s: from the beginning of 1982 until the stock market crash in late 1987, the S&P 500 appreciated at almost an annualized 20% and then from 1995 until 2000, the index rallied with 26% annualised returns before crashing again.

With stocks continuing to move higher with little exuberance and practically no downside volatility, it’s giving people more leisurely time to worry about when it’s going to end. But if this really is a bubble then it is a fairly lacklustre one compared to bull markets of the past.

While we most certainly believe that we are going to see the stock market fall once again eventually, we think it’s wrong to assume it has to end in spectacular fashion from current levels. Moreover, if earnings continue to come in as strong as they have this reporting season, and dollar weakens further, the floor for stocks will likely continue to remain quite high for a while. The earnings-driven bull market looks therefore alive and well.

Moudy el Khodr – Senior Portfolio Manager, US High Dividend & Global High Dividend – NN IP