On 22 August, 3,453 days had passed since the S&P 500 hit its closing low of 677 on 9 March, 2009 – and counting. Perhaps you will also recall that, just a few months ago, the American economy recorded its second-longest expansion in U.S. history, starting in June 2009.
Given the gravitational pull of the American market on pretty much all markets around the world, what does that tell you?
Actually, not a lot.
It is a wonderful example of statistical malleability. For one thing, the previous record is a matter of definition, with the bull run following a 19.9 per cent slump in 1990. A bear market is generally defined as requiring a fall of at least 20 per cent. But of course there is always rounding.
“Given the gravitational pull of the American market on pretty much all markets around the world, what does that tell you? Actually, not a lot.”
Furthermore, the present bull run is nowhere near the previous record run in terms of total appreciation – some 90 percentage points behind. And it is worth remembering that the great financial crisis made room for quite a bit of catching up. Over the last ten years, starting the calculation a couple of weeks before the Lehman Brothers collapse in September 2008, average total return in the S&P 500 comes in at 10.9 per cent. Most certainly a decent return, but hardly a convincing argument that the market must have climbed too high.
In a similar vein, the present economic expansion has delivered fairly lacklustre growth, on average about 60 per cent of the growth seen in the previous ten expansions. One might surmise that there is still room for more – given that such statistics were anything to go by. Some of our clients may believe so, but we are not in that camp. We don't believe it signals an imminent reversal either.
Yes, there is a lot to worry about. There always is and we probably don't need to remind you. However, we don't ascribe much analytical value to such statistics. They certainly don't govern our asset management.
It's just that some numbers provide good entertainment.
