This stock market still looks good, even after 10 years

  • By Ben Levisohn,
  • Barron's
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The stock market hit its financial-crisis low 10 years ago, and now some investors are eyeing the market like a slab of meat that has been sitting in the fridge too long. Thankfully, bull markets—unlike steaks—don’t have expiration dates.

The S&P 500 index (.SPX) finished at 676.53 on March 9, 2009, marking the bottom for its crisis-era selloff. The index has returned 400% since then, including reinvested dividends. Ten years, however, is a long time for a bull market to run, and skeptics have latched onto it as one more reason to predict its imminent demise.

It doesn’t help that March 24 is the 19th anniversary of the peak of the dot-com bubble, another coincidence of timing that has some market watchers warning of an implosion for stocks.

We’re not ready to write a death certificate. Despite the constant drumbeat of pessimism, signs aren’t pointing toward an imminent bear market—and might not for quite a while.

Do we have concerns? Absolutely. The S&P 500 has yet to hit a new high following 2018’s fourth-quarter drubbing, which could mean that the market has already topped out and we just don’t know it yet. Last week’s losses—the S&P 500 dropped 2.2%, to 2743.07, while the Dow Jones Industrial Average (.DJI) fell 576.08 points, or 0.2%, to 25,450.24—add to the unease, as they were spurred by disappointing economic data and the European Central Bank’s decision to stimulate Europe’s sluggish economy. And we know that a recession is the one thing guaranteed to kill a bull market.

Except there’s no sign that the U.S. is on the verge of a recession. The Treasury yield curve hasn’t inverted, and the unemployment rate of 3.8% is still lower than it was a year ago. A much higher rate would be a reason to worry. Even many cautious investors aren’t predicting a sudden slowdown in the U.S. economy, says Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets.

“They don’t see the risk of a recession,” she says. “The market has come such a long distance from the bottom that there’s just a constant worry that the end is near.”

Then again, some investors have been worried about a slowdown ever since stocks bottomed in 2009. “The next recession is the most anticipated of all time,” says Ed Yardeni, president of Yardeni Research.

Dennis DeBusschere, head of portfolio strategy at Evercore ISI, notes that economic volatility has been low since the financial crisis. Growth has been slow and steady. That has prevented inflation from rising too quickly or corporate spending from getting overheated. Without those imbalances, it is difficult for the economy to slip into a recession, DeBusschere says.

Subdued economic growth also keeps a lid on interest rates, which eventually pushes even higher the price that investors are willing to pay for stocks. “The most shocking thing for people would be really poor economic growth with an S&P 500 that keeps going up in line with past returns,” DeBusschere says.

Those past returns haven’t been too shabby. Since 1900, U.S. large-cap stocks have averaged a total return of 6.4% annualized after inflation, according to the Credit Suisse Global Returns Yearbook. That’s 1.4 percentage points better than the 5% average from world stocks. Paul Marsh, a professor at the London Business School and one of the yearbook’s authors, expects real returns to settle around 4% for the U.S. over the next couple of decades—but even that is better than what investors would get from bonds. Investors “would be foolish not to be looking at equities,” Marsh says.

Whether you’re a short-term investor or in it for the long term, stay the course.

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