This week we wish the bull market a happy 9th birthday. On this day in 2009, the market closed with the S&P 500 falling to its lowest level since 1996 at 672.88. From here, one of the longest bull markets in modern history developed, pushing the S&P 500 up over 300% through today.
As one would expect, there are a number of contrasts we can make between the stock market in 2009 and today. For one, in 2009, there was an abundance of measures indicating widespread market panic. For instance, during the week of March 9th, 2009, a long-established survey run by the American Association of Individual Investors (AAII) noted that 70.27% of respondents had a bearish opinion (thought the stock market would decline) of the stock market’s future prospects. This was the highest percent of bearish investors since the AAII survey began in 1987. Today, investors are more confident in stocks, with only 28.38% of respondents showing pessimism about the stock market. This reading is just below the long-term average percentage of investors with a bearish outlook and suggests little evidence of the euphoria generally associated with major market tops (proclamations of a “new paradigm” toward the end of the 1990s bull market come to mind).
Investors may also note market valuation differences between 2009 and today. In 2009, the S&P 500’s dividend yield was 3.60%, its highest level since early 1991, reflecting a general aversion to stocks. Today, this yield is 1.79%. Nine years ago, the S&P 500’s price to book value and price to sales ratios were at multi-year lows, indicating stocks were relatively undervalued. Today, these ratios are at their highest levels in over a decade, suggesting stocks overall are not necessarily bargains.
Nonetheless, valuation often has a long lead time to stock market inflection points. For those who remember when Alan Greenspan was the Chairman of the Federal Reserve, he warned of “irrational exuberance” in December 1996 because of stock market valuations. In spite of this, stocks continued their ascent for another three years and doubled before the Dot-Com bubble burst in 2000. With this in mind, we are cognizant that stocks may not be as cheap today as they were in 2009 and will remain on the watch for signs of the bull market beginning to falter. As it stands today though, the warning signs of an impending recession are not readily apparent, suggesting the nine-year-old bull market could have more room to run.