The Most Unloved Bull Market Finally Comes to an End

(Bloomberg Businessweek) -- The 11-year bull market in U.S. equities is over, at least by one measure. At the close of trading on Wednesday, the Dow Jones Industrial Average had recorded a 20% drop from its highest point. The S&P 500 closed 19% below its high, just outside of bear territory. But the events of recent days had already provided the sense of an ending—the world was already anxious about much more than stock prices.

“The most unloved bull market” is the nickname this rally earned, and for good reason. While it was the longest in history, for much of its life it never quite felt like a boom for most people. It was born in the wake of the 2008 financial crisis and a massive, controversial effort by the U.S. government to rescue the nation’s banks. It was fueled for years by companies buying back their own shares, historically low interest rates, and the Federal Reserve purchasing massive amounts of bonds in what investors interpreted as an effort to keep the party going as long as possible.

The rally added $28 trillion in value to U.S. equities from March 9, 2009, to Feb. 19, 2020. Chalking all that up to financial engineering and a cooperative central bank is too easy, and misses the point. The leading companies of this bull market were genuine innovators. Apple Inc. went from being a $74 billion company in 2009 to a $1.4 trillion company in 2020 not through financial engineering, but by old-fashioned engineering. (In fairness, there was some tax code engineering, too.) Amazon.com Inc. went from being a $26 billion company to a $1.1 trillion company by reinventing the retail industry. Google, Facebook, Nvidia … the list of companies that changed not only our investment portfolios but our daily lives goes on.

The bull market seemed to withstand any challenge thrown its way: the European debt crisis, the loss of the U.S. government’s AAA rating at S&P in 2011, and the trade war. Maybe that explains the indestructible sense of optimism priced into the market as 2020 got underway, with the U.S.-China trade war widely believed to be in the rearview mirror. At its last record in February, the S&P 500 was trading at more than 2.4 times the sales of its companies, the highest such ratio on record in 30 years of Bloomberg data. The price-to-earnings ratio was 22.3, in the top 25% most-expensive valuations since 1990.

This all left the market especially vulnerable to a “black swan” event like the novel coronavirus that is wreaking havoc on economies and corporations around the world—an event that central banks and the government can’t mitigate easily with their traditional toolkits.

The repricing has been sudden and violent. The S&P 500’s last record was three weeks ago. Perhaps, then, the recovery will be just as swift? Making such a prediction would be ill-advised in normal times and downright foolish when it comes to a situation as unpredictable as this one. While stock-market history offers no past event exactly like this, recovering from other bear markets has never been swift. The minimum time it’s taken for the market to return to its highs in previous episodes is 320 trading days, or roughly 15 months, according to Bloomberg strategist Cameron Crise. The median is two and a half years. Both the swiftness of the decline and the heady valuation of the market at the beginning could lengthen the recovery time.

What’s easy to predict is another bull market will come eventually. It could have a different character. The long 2000s bull was built on the legacy of the financial crisis. We may see the next rally as the one in which businesses and investors adjusted to the new rules of a world that’s lived through a public-health crisis.

To contact the editor responsible for this story: Pat Regnier at pregnier3@bloomberg.net

©2020 Bloomberg L.P.