Bull rides into fifth anniversary
Here's a 5-year-old anyone could love.
The bull market celebrates its fifth anniversary today, a milestone in what is about to become Wall Street's fourth-longest wealth-building run ever.
Since the dark days of October 2002 when the worst bear market since the Great Depression ended, the stock market has enjoyed an upward run that created $10 trillion in shareholder wealth, says Wilshire Associates. "It's been an amazing five years," says Jonathan Steinberg, CEO of WisdomTree Asset Management, "even with the volatility."
Monday, the benchmark Standard & Poor's 500 index eased 5 points to 1,553 from its record close Friday, leaving it 99.9 percent higher than when the bull market began. And while the '82-'87 run peaked 13 days after its 5th anniversary, analysts say several powerful factors favor this bull's longevity, including:
- Profit bonanza. Starting in the third quarter of 2002, companies turned on their most powerful earnings stream in history. Earnings have grown for the past 20 quarters, including an unprecedented 18-straight quarters of double-digit growth, says S&P.
Thanks to that earnings explosion, the market is actually less expensive now than it was in 2002. The S&P 500 trades at 16.9 times its past earnings, vs. 18.7 times in October 2002.
Alcoa on Tuesday unofficially kicks off third-quarter earnings season. Hopes aren't very high so far, with analysts expecting growth of just 0.8 percent for the S&P 500, says Thomson Financial. But, earnings need to keep rising to keep the bull market alive, says Charles Blood of Brown Bros. Harriman. "Earnings are the bedrock," he says.
- Global boom. The rapid growth of countries such as China and India has inspired confidence in global economies and sparked rallies in energy and commodity stocks, which have been market's leaders off the bottom, says Roger Volz, technical strategist at Swiss American Securities.
- Resurgence of tech and Internet leaders. No stocks drew more ire in 2002 than tech stocks. But these have been critical in the market's comeback, having gained 142 percent from the bottom, S&P says. Perhaps no other stock has personified this more than Google, which on Monday closed above $600 for the first time, making it the 11th-most-valuable stock in the S&P 500 little more than three years after it went public.
Investors shouldn't assume this rally's days are numbered, says Jim Paulsen of Wells Capital Management. The S&P 500's 99.9 percent gain so far is less than the 139 percent average gain of past bulls, says InvesTech Research. Bulls that live past five years have gained 13.9 percent on average in their sixth year, S&P says. Paulsen says the market can continue because there's still plenty of skepticism. "It doesn't feel like the top," he says.
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