This bull market gets no respect

By Wallace Witkowski

Persistent fear has made this the ‘Rodney Dangerfield’ of bull markets

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MarketWatch illustration/Shutterstock

I tells ya, I get no respect.

 
The current bull market — barring some sudden market catastrophe — is looking to celebrate its seventh birthday on Wednesday. But what it has in longevity, it lacks in love.

So far, the current bull market has lasted 1,762 trading days. Should it last another 29 trading days, or until April 15, it will surpass the bull market that lasted from June 1949 to August 1956 in length. The longest post-war bull market was the monster that lasted for nearly 10 years until March 2000, or for 2,389 trading days.

The current bull market has taken a beating lately, most recently right at the beginning of 2016.

Recently, however, the market’s bounced back with stocks ending Friday with a third week of gains The Dow Jones Industrial Average DJIA, +0.37%  was up 2.2% on the week, the S&P 500 Index SPX, +0.33%  gained 2.7%, and the Nasdaq Composite Index COMP, +0.20%  climbed 2.8%.

 

Curiously enough, one of the few similarities between the current bull market and the one of from the 90s is that they are around the same percentage gain, about 200%, on their seventh birthdays. However, they took different routes to get there.

90s & current bull take different routes to same place.

One reason this bull market is so unloved is a feature that has kept it going for so long, said Jim Paulsen, chief investment strategist and economist at Wells Capital Management.

“I think the most outstanding feature of this bull market compared to history is that it is truly the definition of climbing a ‘wall of worry’,” Paulsen said. “It really is the Rodney Dangerfield of bull markets: It gets no respect.”

A lot of that has to do with how long the recovery has taken, and the amount of adversity it has had to overcome, Paulsen said. The market has had to contend with unemployment fears, debt ceiling and fiscal cliff fights, enormous bailouts of the financial and auto industries, constant fears of a collapse of the eurozone, slowing growth in China and emerging markets, along with fears of a collapse of the municipal bond market and a further collapse in the housing market.

With investors dealing with that level of fear, being conservative has become norm, and in the long run that has been a good thing. “Too much confidence is what has created recessions because it creates too much bad behavior,” Paulsen said.

The lack of respect shows up in Bank of America Merrill Lynch’s sell side indicator, which tracks how much strategists are allocating to stocks in their portfolio. As seen in the chart below, sentiment for stocks was fairly high during the 90s bull market, whereas during the current bull market it’s been mostly bearish.
B. of A. Merrill Lynch’s sell side consensus indicator



What really differentiates the current bull market from the previous one is productivity levels, Wells Capital’s Paulsen said. Productivity grew at about 2.4% per year in the 1990s. Current growth is less than 1%, making it the worst of any post-war recovery, he said.
 
“What allowed the 90s bull to last so long was a surge in productivity,” Paulsen said. “For this bull market to last, we need to have a pickup in productivity.”
                       Bureau of Labor Statistics
Major sector productivity and costs.
Interestingly enough, stalling productivity gains are a leftover from the previous bull market, where companies invested too much in capital projects during the 1990s, only to have a glut of capacity when the bull market ended. Add to that slowing global growth, and corporations are hard pressed to spend money on capital projects, preferring to funnel money toward share buybacks and dividends instead.
 
Simply having full employment is not enough, now companies have to make those employees more productive and that means capital investment, Paulsen said.

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