Connect with us

Markets in a Minute

Visualizing the Length and Growth of Every Modern Bull Market

Published

on

This Markets in a Minute chart is available as a poster.

Visualizing the Length and Growth of Every Modern Bull Market

This Markets in a Minute chart is available as a poster.

The Length and Growth of Every Modern Bull Market

Since 2009, U.S. stocks have sustained the longest bull market in modern history, with the S&P 500 rising by 400%.

Dubbed the “Long, Slow Recovery”, its name can be taken quite literally. At 131 months and counting, it’s the longest of its kind by a margin of 18 months. It’s also one of the slowest growing bull markets in history, compounding at a 16% compound annual growth rate (CAGR).

Today’s Markets In A Minute chart comes from New York Life Investments, which illustrates the length and growth of every U.S. bull market since World War II. From this, we can begin to recognize that bull markets vary quite significantly.

Tale of the Tape

Bull markets—which occur when stocks rise 20% above their low point—have happened 12 times in the S&P 500 since World War II. Here’s how they compare to one another.

NameLength
(months)
Total S&P 500 Change (%)Compound Annual Growth Rate (CAGR)
World War II (1942-1946)49158%26%
Post-war Boom (1949-1956)86266%20%
Cold War Ramps Up (1957-1961)5086%16%
JFK Aims to "Get America Moving Again" (1962-1966)4480%17%
The Go-go Years (1966-1968)2648%20%
Nifty Fifty (1970-1973)3274%23%
A Modest Bull (1974-1980)74126%14%
Reaganomics (1982-1987)60229%27%
Black Monday Comeback (1987-1990)3165%21%
Roaring 90s (1990-2000)113417%19%
Housing Boom (2002-2007)60102%15%
Long, Slow Recovery* (2009-Present)131400%16%

*Figures are as of Feb. 13, 2020
Source: CNBC, Yahoo Finance

Different Recipe, Same Result

History has shown us that bull markets can arise from a variety of scenarios. Here’s how some of the most significant ones came to fruition.

World War II (1942-1946)

Following the attack on Pearl Harbor, America mobilized for war. As government spending climbed, several agencies were established to regulate and control the economy.

These measures led to the creation of 17 million jobs, and brought the U.S. unemployment rate to a record low of just 1.2%. While corporate profits after taxes doubled, income grew for virtually all Americans—manufacturing workers, for example, saw their real incomes rise by nearly a quarter from 1940 to 1945.

It is for these reasons, among others, that the World War II bull market boasts a 26% CAGR, one of the largest in modern history.

Reaganomics (1982-1987)

The bull market of 1982 to 1987 was ushered in by Ronald Reagan’s Economic Recovery Tax Act (ERTA), a historic set of policies based on “supply-side economics”, now famously known as Reaganomics.

Supply-side economics are based on the theory that reducing taxes incentivizes individuals and businesses to produce more. Thus, the ultimate goal of ERTA was to encourage American innovation and entrepreneurship. In practice, this meant reducing marginal tax rates—the top marginal tax rate fell from 70% to 50%, while the lowest rate fell from 14% to 11%.

These cuts were a powerful ingredient for the making of another bull market. The S&P 500 grew by 229% over 60 months, resulting in a record-breaking CAGR of 27%.

Roaring 90s (1990-2000)

Yet another appropriately named bull market, the Roaring 90s lasted an impressive 113 months and generated a mammoth 417% total gain in the S&P 500—the largest in history.

While overall economic growth was robust, the focal point of this bull market was the beginning of the Internet Age and emergence of dot-com companies. Despite weak fundamentals and high valuations, investors poured money into internet startups with high hopes of long-run profitability.

Looking Into The Crystal Ball

While it’s inevitable that the “Long, Slow Recovery” will one day come to an end, this record-breaking bull market has so far proven us wrong. For example, in 2016, a multivariate model designed by economists at JP Morgan predicted the chance of recession within three years to be 92%.

Perhaps this prediction was off because the market environment today is so fundamentally different. With the advent of big tech, five companies now comprise 18% of the S&P 500. Collectively, these five companies (Microsoft, Apple, Google, Amazon and Facebook) have seen their market capitalizations grow by nearly $5 trillion since 2013.

Regardless of what happens, one thing is true: markets will continue to surprise us.

Continue Reading
Comments

Markets in a Minute

The Top Sources Americans Use to Make Investment Decisions (2001-2019)

Americans rely on business professionals the most when making investment decisions, but the internet has become increasingly important.

Published

on

investment decisions

This infographic is available as a poster.

How People Make Investment Decisions

When you’re making investment decisions, there can be a lot of different things to consider. Which types of asset classes should you hold? How much risk are you comfortable with? How much will you need to retire?

It’s no surprise, then, that few Americans make these decisions on their own. This Markets in a Minute from New York Life Investments shows which sources of information families rely on for investment decisions, and how their popularity has changed over time.

The Main Sources of Investment Information Over Time

According to data from the U.S. Federal Reserve Survey of Consumer Finances, here is the percentage of families who reported using each source.

Source200120102019
Business professionals49%57%57%
Internet15%33%45%
Friends, relatives, associates36%40%44%
Advertisements and media27%26%20%
Calling around19%16%13%
Other15%8%9%
Does not invest9%12%8%

Other consists of nine options: don’t shop, material from work, past experience, personal research, other institution, self or spouse, shop around, store or dealer, and telemarketer.

Business professionals, such as financial planners, accountants, and lawyers, remain the most relied upon source. Their popularity has remained stable since 2010.

Traditional advertisements and media, such as through TV and radio, have dropped in overall popularity. The percentage of Americans who call around to financial institutions for investment information has also declined.

Conversely, friends, relatives, and associates have grown in popularity as an information source. Meanwhile, the internet has been the fastest-growing source, used by three times more families in 2019 compared to 2001.

Digital Investment Decisions

A separate survey conducted by consulting firm Brunswick revealed the specific places people go online when making investment decisions.

Digital Investment Decisions

Search engines, blogs, and specialist email newsletters are the most popular sources. Among blogs, Seeking Alpha is the most popular, used by 34% of those surveyed.

Twitter and LinkedIn are the most commonly-used social media platforms. The proportion of investors using Twitter for information has grown by 36 percentage points since 2014.

Implications for Investors and Advisors

If you’re an investor, this information can help you gauge how your research process compares to the general American population. Is your preferred information source popular with others, or is it less common? For those who have yet to get started investing, this may give you some ideas on where you can start looking for information.

If you’re an advisor, these research trends can have important implications for your business. While business professionals remain the most-used source, other sources of information are shifting. Traditional advertising and inbound calls from potential clients continue to be less common. Instead, advisors may want to shift their focus to building an online presence and increasing referrals from existing clients.

Advisor channel footer

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading

Markets in a Minute

Visualizing Asset Class Correlation Over 25 Years (1996-2020)

To minimize volatility, it’s important to consider asset class correlation. Learn how correlation has changed over time depending on macroeconomic events.

Published

on

Asset Class

This infographic is available as a poster.

Asset Class Correlation Over 25 Years

How can you minimize the impact of a market crash on your portfolio? One main strategy is building a portfolio with asset classes that have low or negative correlation.

However, the correlation between asset classes can change depending on macroeconomic factors. In this Markets in a Minute from New York Life Investments, we show the correlation of select asset classes and how they have shifted over time.

What is Correlation?

Correlation measures how closely the price movement of two asset classes are related. For example, consider asset class A and B.

  • If asset class A rises 10% and asset class B also rises 10%, they have a perfect positive correlation of 1.
  • If asset class A rises 10% and asset class B doesn’t move at all, they have no correlation.
  • If asset class A drops 10% and asset class B rises 10%, they have a perfect negative correlation of -1.

When investors are building a portfolio, asset classes with negative correlation or no correlation are most desirable. This is because if one asset class drops during a market downturn, the other asset class will either rise or be unaffected.

Correlation Between Stock Categories

Stock categories have historically had some level of positive correlation. Here are the correlations for small and large cap stocks, as well as developed and emerging market stocks.

 U.S. Small Cap vs. U.S. Large Cap StocksDeveloped vs. Emerging Market Stocks
19960.640.51
19970.630.76
19980.970.87
19990.580.80
20000.380.74
20010.870.78
20020.730.90
20030.850.75
20040.830.79
20050.930.93
20060.750.93
20070.890.75
20080.960.95
20090.910.88
20100.960.97
20110.970.89
20120.910.89
20130.860.86
20140.750.78
20150.820.76
20160.890.73
20170.390.14
20180.880.73
20190.940.91
20200.930.89
Min0.380.14
Max0.970.97

Rolling 1-year correlations based on monthly returns.

When macroeconomic conditions are strong, the correlation between stock categories tends to be lower as investors focus on individual company prospects. However, when market volatility rises, stocks tend to become more correlated as investors move to safer assets.

This was the case in 1998, when small and large cap stocks reached a peak correlation of 0.97. Russia defaulted on its debt, and a highly-leveraged hedge fund called Long Term Capital Management (LTCM) faced its own defaults as a result. Many banks and pension funds were invested in LTCM, and the Federal Reserve bailed out the fund to avoid a bigger crisis.

Shortly thereafter, small and large cap stock correlation reached a low in 2000. The dotcom bubble initially burst among large cap stocks, impacting some of the world’s largest companies. Small cap stocks didn’t see losses until 2002.

For developed and emerging markets, correlation peaked in 2010 when many countries were recovering from the global financial crisis. On the other end of the scale, correlation plummeted to its lowest level in 2017. One reason is that emerging markets became more distinct from one another due to their varying political risk and sector makeup.

Bonds, Commodities, and Currencies

In contrast to stock categories, there are some asset class pairings that have provided a low or negative correlation. Here is historical correlation data for U.S. stocks and bonds, as well as gold and the U.S. dollar.

 U.S. Stocks vs. U.S. BondsGold vs. U.S. Dollar
19960.510.29
19970.68-0.40
1998-0.41-0.19
19990.34-0.36
20000.40-0.44
2001-0.39-0.38
2002-0.72-0.30
2003-0.04-0.43
20040.04-0.65
2005-0.20-0.27
20060.28-0.86
2007-0.44-0.55
20080.34-0.67
20090.64-0.33
2010-0.580.29
2011-0.35-0.59
2012-0.37-0.53
20130.33-0.11
20140.24-0.60
2015-0.26-0.10
2016-0.21-0.58
2017-0.09-0.23
2018-0.26-0.51
2019-0.37-0.51
20200.29-0.43
Min-0.72-0.86
Max0.680.29

Rolling 1-year correlations based on monthly returns.

Stocks and bonds generally have low correlation, with negative correlation in 14 of the last 25 years. Correlation tends to be highest during periods of high inflation expectations. On the flip side, correlation is typically lower during periods of low inflation expectations or high stock market volatility.

These factors contributed to negative correlation in 1998 during the Asian Financial Crisis. Stock prices flattened due to company trade relationships with Asian economies, while bonds benefited from lower rates and lower inflation. In 2002, high market volatility due to the dotcom bubble resulted in stocks and bonds reaching their most negative correlation.

Similarly, gold and the U.S. dollar generally move in opposite directions, with negative correlation in 23 of the last 25 years. When optimism in the U.S. economy is high, the U.S. dollar tends to rise. Conversely, when there are concerns about the U.S. economy or inflation, gold is considered a safe asset that holds its value.

In 2006, gold and the U.S. dollar reached their most negative correlation. As the beginnings of the subprime mortgage crisis appeared, investors piled into safe haven assets such as gold. In 2010, gold and the US dollar had a brief moment of positive correlation. Concerned about the European debt crisis, investors sought safe haven assets elsewhere, including both gold and the U.S. dollar.

Choosing Asset Classes

As investors think about which asset classes to include in their portfolios, it’s important to consider correlation. For instance, stock categories have historically been positively correlated. To diversify, investors may want to consider bonds and alternative assets such as gold.

In addition, macroeconomic events such as financial crises can have an impact on correlation, and investors may want to monitor these changes over time. Finally, considering the risk and return characteristics of various asset classes will allow investors to build a portfolio best suited to their needs.

Advisor channel footer

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading
New York Life Investments

Subscribe

Are you a financial advisor?

Subscribe here to get every update, including when new charts or infographics go live:

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Popular