Longest Bull In US Stocks Ended Last Month – Panicky Fed Cannot Afford End Of ‘Fed Put’

No one rang the bell when the longest bull in US stock market history came to an end last month. The drop was swift and decisive. Several oversold metrics are itching to get unwound. But markets are in panic mode. Fiscal help is coming in piecemeal. And the Fed itself is in panic mode, cutting the policy rate by 125 basis points in two weeks in as many emergency meetings. It cannot afford the end of the so-called ‘Fed put’.

The longest bull market in US stocks is over – in a rather unexpected manner. As recently as February 19, the S&P 500 large-cap index (2711.02) reached a fresh intraday all-time high of 3393.52. In the next 16 sessions, that is by last Thursday, it crashed 27 percent. Market participants use 20 percent as the threshold to decide if a bull or bear market has begun. This includes S&P Dow Jones Indices whose data is used in Chart 1. 

The latest bull began on March 9, 2009, and ended on February 19 this year, lasting 131 months. The previous high was 113 months, which lasted between October 11, 1990, and March 24, 2000. In the 13 bull markets going back to the 1930s, these are the only ones exceeding 100 months. In fact, nine of them lasted five years or less. 

The curtain was brought down in a swift and decisive manner. The S&P 500 rallied 401 percent during the nearly-11-year-old bull – second only to the 417-percent jump in the 1990s – so longs did not want to wait around and wonder what is next. Due to the coronavirus and the associated disruptions to the global supply chain and the daily lives, the threat of a global recession is real. A large number of investors have accordingly rerated their outlook.

The sell-side in the US is yet to do so. These analysts are notorious for starting out in an overly optimistic manner and revise estimates lower as the year progresses. For last year, operating earnings estimates for S&P 500 companies were $177.13 in August 2018. When it was all said and done, 2019 brought home $157.11. This year, a year ago these companies were expected to ring up $186.36, which as of last Thursday was cut down to $169.94, which will still register growth of 8.2 percent. Investors who pushed the ‘sell’ button the last four weeks lack conviction in either these numbers or the valuation multiples derived thereof. 

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