Can the US Stock Market Rally Sustain?
We’re now in the midst of one of the longest bull runs in history, though given the generally modest day-to-day upticks in the averages, it may not seem like it. Significant corrections have been few and far between. But, as the saying goes, “There’s always something.” For the last year or so, a major concern has been that, in the words of one columnist, “Investors are worried that investors aren’t worried enough.”
The ongoing bull run in the stock market
After the significant loss incurred during the 2008 recession, the stock market started trending upward in March 2009. The upward trend continued with few fluctuations. This year marked the eighth year of a bull run in the US stock market, as you can see in the chart below. The three most followed indexes in the US stock market have delivered staggering returns since 2009. As of November 13, 2017, the S&P 500 Index (SPY) (SPX-INDEX) has risen 269%. The Nasdaq Composite Index (COMP-INDEX) (QQQ) has risen 411%, and the Dow Jones Industrial Average (DJIA-INDEX) (DOD) has risen 247%.
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The current trend in the stock market
Doubts emerged after the US presidential election in November 2016, as many economists and investors were unsure of a Donald Trump presidency. However, things turned out better than expected. Since the presidential election, the US economy has been reviving. The labor market is showing improvement. The October 2017 jobs report showed the unemployment rate declining to 4.1% and 261,000 jobs added. Corporate earnings have also shown impressive growth this year. A Factset report from November 10, 2017, stated that currently, 91% of the companies in the S&P 500 have reported earnings, and the blended earnings growth rate for 3Q17 stands at 6.1%. All of these factors have contributed to the astounding growth in the stock market this year. The S&P 500 Index has risen 15.4%, the Nasdaq Composite has risen 25.5%, and the Dow Jones Industrial Average has risen 18.6% as of November 13, 2017.1
The bull market this year has seen the second-largest gain and the second-largest trading days, as shown in the chart above (Data is for the S&P500).
In a report by CNBC, Ed Clissold, chief US strategist for Ned Davis Research, expressed his opinions about the bull run in the equity market and the ongoing corporate earnings growth. He believes the mid-cycle earnings recovery in 2017 points at some risk heading into 2018 and that the stock market might tumble when the earnings growth rate peaks.
The strengthening labor market, inflation, and growing corporate earnings have all contributed to the bull run in the equity market this year. But how long that bull run in the US stock market can last is what investors need to watch.
Let’s move on and look at the options investors have in a volatile environment.