Happy Birthday, Bull Market! – As of March 9, the bull market officially turned seven years old. Since its start, the S&P 500 has climbed +191% putting it now about 25% above its October 2007 peak. Entering its eighth year, this bull market is now the third longest on record and the fifth biggest in size.
A bull market does not have to die of old age alone, so do not subscribe to the notion that this bull is ending simply because of its age. The 1990 – 2000 bull market lasted 10 years and there’s nothing to say that the current one can’t surpass that record. The global economic expansion has been far from inspiring since 2009, with below average GDP growth rates virtually across the board. But, ‘muddle-through’ growth is still growth and may even assist in preventing bubbles and overvaluations from occurring too quickly.
Negative Rates Not a Solution – the negative interest rate experiment presses on, with Mario Draghi and the European Central Bank considering pushing rates even further into the negative as their next move. The results are yet to be fully known and understood, but the risks are pretty clear. According to the Bank for International Settlements (BIS), the impact of negative rates is being passed on to businesses and consumers through lower deposit rates and it could ultimately undermine the models of banks, pension funds and insurance companies. One of the larger issues with negative rates, according to the BIS, is that if rates do not create the intended consequence of spurring lending and combatting deflation, central banks can find themselves trapped with few other alternatives left to stimulate their economies. This is less a problem in the U.S. than it is for Europe and Japan.
China’s Trade Figures Dismal, Devaluation Effects Questioned – China’s trade figures this week were much worse than analysts had anticipated – exports fell 25.4% from a year earlier which marks the biggest drop so far in this global expansion (seven years). Imports also fell 13.8%, leaving a trade surplus of $32.59B. Let’s hope China does not resort to devaluing the yuan even further – the last time they made a major devaluation, in August 2015, the market corrected over 10% for the first time since 2012. The People’s Bank of China is looking increasingly desperate to foster fresh growth in context of the slowdown, but a big part of it is political – as a communist nation, China justifies its tight grip on power by “manufacturing” economic growth. Absent growth, the chances of uprisings increase.
Europe Economic Conditions Weak, But Improving – Greece is now the only country left in the ‘rescue program’ created by the European Union and the International Monetary Fund to bailout countries with sovereign debt issues. Earlier in the week, Cyprus officially exited the bailout without need for a follow up fund. You may recall a few years back, in March 2013, when Cyprus’ banks nearly collapsed as the government simultaneously struggled with a rising deficit and troubled access to capital markets. The health of the country has improved since, and the same can be said of the European Union as a whole. The finance minister of Cyprus failed to commit to when they may re-enter the capital markets, but he gave assurances that growth is back on track, debt is coming down and non-performing loans are being structured fast. Cyprus follows countries like Spain, Portugal and Ireland that exited the bailout plan with success. Growth is still weak in the European Union, but economic conditions are getting better – not worse.
Housing Wealth on the Rise – the rise in housing wealth has been a bright spot amid the volatility that set-in last summer. From the end of 2013 through the end of 2015, home equity has climbed 22% versus an 11% gain for the S&P 500. Since home ownership is more prevalent than stock ownership, the wealth effect is felt more broadly among every-day consumers. Additionally, housing wealth is poised to reach a new record as early as the second quarter. To be sure, however, rising home prices are felt disproportionately in some markets (metropolitan) versus others. The biggest increases came in San Francisco, Denver, Charlotte, Boston and Dallas, which clearly leaves out a large swath of the middle of the country. Still, an encouraging sign.