U.S. stocks this week reached an important milestone by becoming the longest bull market on record. From the rubble of the financial crisis, the market has risen like a phoenix to become a vibrant symbol of economic recovery and the potency of the Federal Reserve’s easy-money policy.
Since March 2009, which many view as the birth date of the bull market, the S&P 500 SPX, -0.17% has rallied 320%, the Dow Jones Industrial Average DJIA, -0.30% has soared nearly 300% and the Nasdaq COMP, -0.13% has jumped 520%.
But the journey to record territory has, by no means, been a smooth one, with each peak representing a hard-fought battle between bulls and bears.
Joe Quinlan, head of market strategy for Bank of America global wealth and investment management, in a Thursday note charted the S&P 500’s 10-year journey from rock bottom to its summit that serves as a graphic paean to U.S. stocks.
In so doing, he shared a few important lessons:
1. Scale and speed matter“The bigger the problem, the faster the required policy response to contain the collateral damage,” Quinlan wrote.
The strategist believes the quick response from policy makers in the U.S. helped to keep the crisis from spreading, whereas officials in Europe were more gradual with their remedies, prolonging the problems, particularly in countries like Greece, Portugal and Ireland.
“In the U.S., in contrast, the monetary response was wrapped in terms like ‘big bazookas’ and ‘shock and awe,’ aggressive terms that spoke to the need to act swiftly and decisively,” he said.
In a series of market-supportive measures known as quantitative easing, the Federal Reserve injected trillions of dollars to prop up the economy and keep the banking systems from complete collapse, and in the process swelled its balance sheet to more than $4 trillion. Beginning in late 2015, the central bank started to normalize monetary policy, with the Fed expected to raise interest rates again in September.
2. Never bet against the U.S.The U.S. economy is among the most healthy and dynamic in the world, and no other stock market has delivered better returns, as the following graph demonstrates.
“While super-easy monetary policies have certainly lent support to U.S. equities over the past decade, so too has a U.S. private sector that was quick to slash costs, boost productivity, shed unnecessary assets and restructure debt,” said Quinlan.
The ability of U.S. companies to “reinvent” themselves in the wake of the crisis changed the economic landscape, according to the strategist, who highlighted energy firms’ innovation with shale technology for doubling U.S. oil output.
3. Money can’t buy loveQuinlan argues that people have short memories.
“After spending trillions of dollars in support of numerous industries and millions of households, many governments confront ornery constituents. How else to explain the recent surge in global populism and trade and investment protectionism?” he wrote.
The strategist believes Brexit and Donald Trump’s presidency were prime examples of populism exploiting the “wounds and scars” of people still hurting from the financial crisis.
4. The global economy is one big familyThe U.S. is not an island, and what happens over there, matters here — as the market found out recently with Turkey’s currency crisis, where contagion to other regions emerged as a key concern.
“The global economy and financial markets are highly interconnected and interdependent; shocks that seem localized can be symptomatic of wider systemic problems,” he said.
In sum, the main takeaway for Quinlan from the past 10 years is that stocks may be volatile in the short term, but they almost always rise over the long term.
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