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Happy Birthday - March 11, 2019

The bull market turned 10-years old on Saturday, March 9th. During the depth of the Great Recession, the S&P 500 Index touched a bottom of 676.53 on March 9, 2009 (St. Louis Federal Reserve). The Dow Jones Industrial Average bottomed the same day at 6,547.05. On Friday, the respective averages closed at 2,743.07 and 25,450.24 (MarketWatch).

Another way to view the decade’s progress: the total average annual return for the S&P 500 Index, including dividends reinvested, came to 17.5% per year. The same metric for the Dow has been 17.4% per year (through 3/7/19, S&P Dow Jones Indices).

The graphic below compares the current bull market with the five longest bull runs since WWII.

Technically, the S&P 500 must close above its prior closing high; otherwise, September 20, 2018 will mark the end of the bull market. Still, we have yet to enter a bear market, or a 20% decline from closing peak to closing trough.

Despite very strong returns over the last 10 years, the upward trajectory hasn’t been without turbulence.

The broad-based index of 500 larger U.S. companies nearly entered a bear market in 2011 and late last year, when the closing peak-to-trough declines nearly touched 20%. Further, there were four other instances when the index fell by at least 10% during the ten-year period.

What’s behind the markets surge? Generally speaking, the economy has been expanding, corporate profits have been growing, interest rates have been low, and inflation has been subdued.

Still, we’ve faced plenty of shorter and longer-term headwinds.

The European debt crisis, Greece, global growth worries, loss of the USA’s triple-A credit rating, slower U.S. growth, slower Chinese growth, strong dollar, Japan earthquake/tsunami/nuclear disaster, the fiscal cliff, a rising deficit, Obama might be re-elected, Trump might get elected, Hillary might get elected, the Fed will end bond buys, the Fed will start hiking interest rates, falling oil prices, Ebola scare, Russia invades Ukraine, North Korea, ISIS, Syria, Brexit, trade tensions, acrimony in D.C.

That said, it is unlikely the next 10 years will be as generous as the last 10. Eventually, we’ll experience a profit-killing recession that will likely pull stocks into bear territory. Or, other headwinds could emerge.

Still, 200 years of history suggest that bear markets are followed by bull markets, and shares eventually move to new highs. It’s one reason why one component of the financial plan we recommend includes, among other investments, a diversified portfolio of stocks.

It may be a large component or a smaller component. It depends on your circumstances, but a well-diversified portfolio of stocks has historically created wealth over the long term.

@LWMLLC