No Respect for this Bull Market

by Brad Houle, CFA Executive Vice President

The stock market was up for the week with the S&P 500 returning .20 percent.  During the week, the S&P 500 climbed to an all-time high on Thursday. Bonds were higher in price and lower in yield with the 10-year Treasury moving from a 1.59 percent yield on Monday to a 1.51 percent yield at the end of the week. Economic data released this week included retail sales which were largely unchanged in July. Car sales were higher in the month but were offset by a decline in the value of gasoline sales. In addition, University of Michigan released consumer confidence numbers this week which came in at 90.4, which is slightly higher than what was released in July. A score of 90.4 indicates that consumer confidence remains high and the job market continues to strengthen.

Investors are skeptical and distrustful of the bull market. Generally, when the stock market is going up and hitting all-time highs, there is interest among investors and exuberance. Human nature is to buy things that are going up in hopes that they will go even higher. This bull market is behaving differently, with investors still stinging from the financial crisis and feeling distrustful of the stock market. The experience was so scarring, it is thought that the financial markets have permanently lost a significant number of potential investors. In addition, economic growth remains modest domestically and throughout the developed world. As the chart below illustrates, over the course of this seven-year bull market, investors have been consistently pulling money out of the stock market. The blue lines represent equity mutual fund flows, with the preponderance of the observations falling below the “zero line.” Investors have been significant sellers of equities as the psychology has been that every routine correction in the stock market is going to unleash a crisis like we experienced in 2008 and 2009.

S&P 500
S&P 500

Source: ICI

Now into its seventh year, this bull market is not young. It is, however, important to remember that bull markets don't die of old age―they die of overheating. Though equities are no longer inexpensive in this low interest rate environment, there are very few “cheap” or undiscovered asset classes. That said, we are not seeing evidence of speculative bubbles that would be a harbinger of an overheating economy.

Our Takeaway for the Week

  • The Dow, S&P 500 and NASDAQ reached all-time highs this week
  • Despite this, we are witnessing the Rodney Dangerfield of bull markets