Trade tensions, moderating global growth, political drama, rising interest rates that boost borrowing costs, and a gripe with Turkey and others – all be damned! While these matters may pose risks, they haven’t collectively prevented key stock market indices from claiming new highs.
Last week the Russell 2000 (small cap) index closed at new highs as did the S&P Mid Cap Index as well as the large and mega-cap index, the S&P 500. It took the S&P nearly 7 months to take out its previous high from late January. The S&P closed at 2,898 on Tuesday (August 28th), and appears that it’s only a matter of time before we pierce 3,000. Amazingly, 50 years ago (June, 4, 1968) the S&P first broke through 100!
Asset Class Returns since March 2009 – July 2018
Since March 2009 through late August 2018, the S&P 500 is up nearly 325%. While short-term risks have rocked the boat, U.S. stocks have outpaced other global markets – over that time, and particularly this year – on strong corporate earnings growth and more favorable economic fundamentals.
While this year’s rally had been largely driven by a few large tech names, as summer rolls along it’s become more broad-based than tied to a handful of stocks which is healthier for investors.
Let’s quickly look back as to what’s driven the market rally for the past 9 ½ years. Mainly it’s been fundamentals – record corporate profits; an expanding economy; an accommodating Federal Reserve that gave us quantitative easing (QE) and zero interest rate policy (ZIRP) to get the economy back on track (and today, rates are still low and rate hikes are gradual, encouraging investors to look to riskier assets); low inflation that supports higher valuations; record stock buybacks; and economic confidence that supports higher valuations.
What’s held investors back from truly embracing the rally? The Wall of Worry!
