If you’re waiting for part 11 of the Safe Withdrawal Rate series, please be patient. It’s scheduled for next week and will dive deeper into variable withdrawal rate rules! For this week we have some other pressing business because tomorrow will be the eighth birthday of a very good friend of ours:
The Bull Market that started on March 9, 2009.
Almost eight years ago to the day we saw the trough of the stock market during the Global Financial Crisis when the S&P500 index closed at 676.53 and the Dow Jones Industrial at 6,547.05. The intra-day low on March 6 was even a bit lower – the very ominous 666 points in the S&P500. Everyone pretty much thought the world would end soon!
How bad was the March 2009 trough?
- From its previous high in October 2007, the S&P 500 index fell by almost 57% and even with dividends reinvested the drop was a still staggering 55%.
- This drop was even more severe and at a faster pace than the Dot-Com bust in the early 2000s, which was “only” a 49% drop over 2.5 years!
- In March 2009, the S&P500 fell all the way back to its September 1996 (!) level, so it wiped out 12 years worth of equity gains.
We have come a long way since then! Here are some of the vital stats for this Bull Market (all referring to the S&P500 through 3/7/2017):
- The index gained about 250% since the trough, over 300% with dividends reinvested!
- It took the index until March 2013 to reach a new all-time high. (Though, with dividends reinvested, the S&P500 reached a new high quite a bit earlier, in August 2012!)
- The eight years brought us very impressive annualized returns: 17% for the S&P500 price index, just under 20% with dividends reinvested and just under 18% when adjusting for inflation! About three times the long-term average!
- If you lacked a robust stomach you would have missed the best part of the bull market! That’s because the most impressive return came during the first year; about +70% by March 9, 2010. Had we missed that initial bounce, we’d look at a much lower annualized return of around 13.4% with dividends and 11.7% in real, inflation-adjusted terms from March 2010 to now. Still very impressive but only twice the historical average!
- Despite the impressive performance, this bull market had its bumps, of which the three most notable were:
- The European debt crisis (-16%)
- The U.S. budget mess in 2011 (-19%)
- The Chinese devaluation (August 2015) and monetary policy uncertainty (January/February 2016) with a 14% drop
How does this bull market stack up against others?
In the chart below, let’s plot how the current bull market compares to six of his cousins. I picked the stock market troughs of the previous 5 recession lows (lumping together 1980 and 1981-82 as one single event) and also throwing in the May 1932 trough for good measure. I plot 12 years of returns going forward for the historical bull markets, which obviously means there is at least one bear market in between plus the start of the next bull market. Also, I didn’t have intra-month data going back very far so the other Bull Markets starting dates are all at the month-end. The 2009-2017 Bull Market is about on par with the other three impressive runs that started in 1932, 1982, and 1990. In contrast 1970, 1974, and 2002 were the starting points of relatively short-lived expansions followed by the next downturn after only a few years.
The good news is that there is a precedent of a bull market that keeps going even after 8 years. The 1982 Bull Market faced a slowdown during the eighth year (the 1990/91 recession), but it was a nice short recession without too much of an equity market drawdown (not even visible due to the annual frequency!) and the start of the next bull market (so the years 8-12 of the 1982 Bull market are roughly similar to years 0-4 of the 1990 Bull Market).
What’s not to love about this Bull Market? Well, despite its impressive performance it appears to be an underappreciated market, see the survey data from Gallup below:
Stock ownership took a nosedive after the global financial crisis but started to recover in 2014/15. I guess it took the 30%+ return in 2013 and another solid year in 2014 to get folks back into the market again. But even in April of 2015, the share stood at only 55%, a full 10 percentage points below the 2007 peak. After the tumultuous phase in 2015 and early 2016, the share dropped back 52%, though. And I suspect all those people getting out of the market didn’t sell at the 2015 peak but rather at the September 2015 or February 2016 low points. Retail investors are not the best market timers!
So, everybody, let’s give our friend the Bull Market the respect he deserves. He made a lot of us very wealthy! Happy eighth birthday and we wish you many more healthy years!
We hope you enjoyed today’s post. How will you be celebrating this birthday? Please leave comments and suggestions below!