Interestingly Uneven

Interestingly Uneven

Published On: January 3, 2020

Written by: Ben Atwater and Matt Malick

With 2019 ended and 2020 beginning, we are writing a series about markets and the economy.  The series is mainly visual, anchored with charts, but includes brief bullet point explanations of each chart.

Throughout the series, we examine the current bull market.   We explore why we are at record levels in the S&P 500 and how we arrived here. Our essays to date have addressed the strong labor market and solid consumer confidence, benign inflation and low interest rates, and unprecedented late cycle government stimulus which policymakers accelerated in 2019.

Other essays in this series will examine what’s been interesting and even unique about this bull market and, ultimately, what threatens the bull market in 2020 and beyond.  Today, we jump into what’s been interesting about this bull market, particularly its uneven performance.  To read the previous essays in the series please visit our blog.

  • Bull markets always have leadership.  In the case of this long bull, the leader has been the technology sector.  From the bull market’s beginning on March 9, 2009 through year-end, the technology sector experienced price appreciation of over 650%. 
  • Bull markets also tend to have lagging sectors and in our current bull market, the most severe example is energy, which has increased just 38.88% from the bull market bottom. 
  • Most of energy’s gain happened within a couple of months from the bottom.  And since its peak in 2014, energy has been a serious loser. 
  • Another, albeit less severe, performance gap has occurred in growth versus value stocks.  Growth stocks tend to have a higher rate of earnings growth, a higher price-to-earnings ratio and a lower dividend yield – vice versa for value stocks. 
  • From the bear market bottom, growth has outperformed value by well over 100%. 
  • Until 2015, value hung-in, however, from there, growth exploded, leading to the considerable divergence.  Not only energy, but financial, consumer staple and industrial stocks have held value back, while technology stocks have spurred growth. 
  • The third remarkable divergence of the current bull market is the performance of U.S. stocks (S&P 500) versus the performance of developed market international stocks (MSCI EAFA) and emerging market international stocks (MSCI Emerging Markets). 
  • Emerging markets rebounded first and strongest from the bear market bottom, but in the summer of 2011 suffered a big fall related to the European Debt Crisis.  Then, EM held its own for another year, but never retook the 2011 highs and withered into 2016.  EM rebounded into 2018, but fell apart again, only recently regaining traction.  Developed international followed a very similar, although less dramatic, pattern.  This goes to show the difficulty of market timing. 
  • All the while, the U.S. S&P 500 blazed a rarely interrupted path higher culminating in the 2019 melt-up.

Make no mistake, these have been powerful trends.  An investor, when sticking to a discipline, should always get some right and some wrong.  For instance, we have a U.S. bias, but we also have a value orientation.  Regardless of the power of these bull market trends, they surely will not last forever.  It’s vital that investors understand that tremendous risk and volatility will someday return to the stock market.  Additionally, many of the above trends will someday reverse themselves.  For example, international and value will probably lead over the next decade.  This won’t start on January 2, 2020, but the next ten years will surely bring a very different stock market from the last decade.

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