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Run, Bull Market, Run!

Run, Bull Market, Run!
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Monday, 13 March 2017 06:44 PM Current | Bio | Archive

The Bubba Gump Shrimp Co. Restaurant and Market is a seafood restaurant chain inspired by the 1994 film “Forrest Gump,” which is one of my personal favorite movies. The chain, which capitalized on the movie's popularity, is owned by Viacom, which owns Paramount, the studio that distributed the movie. In the movie, simple-minded Forrest likes to go for long runs, including from the East Coast to the West Coast and back. Along the way, crowds cheer him by chanting, “Run, Forrest, run!”

Everyone is certainly impressed with the endurance of the bull market in stocks, which has been running for the past eight years from March 9, 2009 through last Thursday (Fig. 1). We should all be chanting, “Run, Bull, run!” Then again, that might not be such a good idea since lots of soldiers died during the First Battle of Bull Run, fought on July 21, 1861 in Virginia. It was the first major battle of the American Civil War.

Nevertheless, Joe and I continue to cheer for the bull. We are still predicting 2400-2500 on the S&P 500 by the end of the year—or the end of the week. The index briefly poked the bottom end of our range on an intraday basis on March 1. If it gets to the top end of our range ahead of our schedule, we may recommend taking some profits. That might also force us to tone down our Stay Home investment strategy and recommend finding stocks with cheaper valuations abroad. We much prefer bulls that run at a more leisurely pace. They are more likely to endure. Aging bulls that suddenly decide to sprint may run the risk of having a major coronary. Instead of worrying about the future, let’s review the bull’s accomplishments over the past eight years:

(1) Length. The race most likely isn’t over for the latest bull run, which is the third longest-running on record for the S&P 500, at 2914 days through the March 1 record high (data are available since January 1928 on a daily basis). There have been 23 bull markets since the start of these data (see our S&P 500 Bull and Bear Markets, Table 2).

(2) Return. The S&P 500 is up 250.7% from March 9, 2009 through March 9 of this year (Fig. 2). So far, that’s the third-best bull market performance since 1928. Using weekly data, the eight-year percentage change in the S&P 500 is the best such gain since December 2000 (Fig. 3).

(3) Sectors. Here is the performance derby of the sectors outperforming the S&P 500 since March 9, 2009: Consumer Discretionary (448.0%), Financials (390.5), Information Technology (347.3), Real Estate (326.9), and Industrials (321.5) (Fig. 4). Underperforming the S&P 500 have been Energy (64.2), Telecommunication Services (91.9), Utilities (124.0), Consumer Staples (181.4), Materials (198.7), and Health Care (244.8).

US Employment: Faster Pace. The bull market in employment may have gotten recharged with some “animal spirits” as a result of Trump’s victory. Numerous surveys of consumer and business confidence soared after Election Day, as Debbie and I have observed. Those were widely deemed to be “soft data.” Now we may be seeing some “hard data” confirming that economic growth is improving. Consider the following:

(1) Soft data. Among the first signs of renewed strength in the labor market was the average of the employment components of the five regional business surveys conducted by the Federal Reserve Banks of New York, Philly, Richmond, Kansas City, and Dallas (Fig. 5). It rose from -0.6 during October to 9.9 last month, the highest since November 2014. Also registering strong readings during February were the employment components of the M-PMI (54.2, up from 51.8 during October) and NM-PMI (55.2, up from 52.2) (Fig. 6).

Over the past three months through January, 30.7% of small business owners said they have positions that they are unable to fill right now, the highest percentage since February 2001 (Fig. 7). This series is highly inversely correlated with the percentage of consumers saying that jobs are hard to get, which fell to 20.3% during February, the lowest reading since August 2007, according to the confidence survey conducted by the Conference Board.

(2) Hard data. Among the highest-frequency hard-data series for the labor market is weekly initial unemployment claims. During the week of March 4, the four-week average at 236,500 was little changed from the prior week’s 234,250—which was the lowest since April 1973 (Fig. 8). That’s quite extraordinary given that payroll employment is now nearly double what it was back then! February’s private-sector payrolls rose 227,000 according to the Bureau of Labor Statistics (BLS) and 298,000 according to ADP (Fig. 9). Boosting both surveys were jobs in goods-producing industries, including both manufacturing and construction, with gains of 95,000 in the BLS data and 106,000 in ADP’s (Fig. 10).

The payroll data counts the number of jobs, both full-time and part-time. The BLS household employment survey counts the number of people who are employed. This gauge rose 447,000 during February, following a decline of 30,000 during January. Most of the increase was attributable to full-time employment, which rose to yet another record high last month (Fig. 11).

(3) Odd data. Despite all the signs of a tightening labor market, there is one that isn’t confirming this picture. Wage inflation remains stuck under 3.0% y/y, as Debbie discusses below in detail (Fig. 12). However, that’s a pretty picture for the overall economy, implying that jobs are growing without generating inflationary pressures. The Fed is likely to respond by raising interest rates but at a gradual pace. This all increases the odds that the current economic expansion and bull market in stocks both have room to run.

(4) Happy data. The bottom line of the latest employment report is that our Earned Income Proxy for private-sector wages and salaries rose 0.4% m/m and 4.3% y/y during February to yet another record high (Fig. 13 and Fig. 14). This augurs well for retail sales and the overall economy. Run, Forrest, run!
 

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.

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EdwardYardeni
Everyone is certainly impressed with the endurance of the bull market in stocks, which has been running for the past eight years from March 9, 2009 through last Thursday.
bull market, stocks, investors
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2017-44-13
Monday, 13 March 2017 06:44 PM
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