The financial press in the US has been abuzz with the news that the S&P 500 index, regarded as the country’s most reliable stock market bellwether, is in unchartered territory.
At close of trading last night, stocks had been in a bull market for a record 3,452 days. This is if you accept the common wisdom that a bear market occurs when stocks drop by 20% from their highs. The record was accomplished in cruise mode with the S&P flirting with its all-time highest close, suggesting that there was still fuel in the tank to power up the markets for a while yet.
To understand how long the bulls have been running, recall that a fresh, young Barack Obama was in the third month of his first term as president when the markets turned on March 2009 at the height —or should that be depths? — of the global crisis.
There are, of course, lessons to be learned from this market performance. The first is that the US economy, which was on the brink of financial disaster, was rescued by decisive intervention by its government, which acted with uncharacteristic speed. The intervention had two dimensions: rescuing failing banks, insurers and even car makers with equity purchases and by stimulating the market with cheap money from lowered interest rates.
THE RECORD WAS ACCOMPLISHED IN CRUISE MODE WITH THE S&P FLIRTING WITH ITS ALL-TIME HIGHEST CLOSE.
While criticised at the time by the Republican right, it is now abundantly clear that without those actions, US capitalism might have disappeared up its own wazoo, to borrow a borderline American expression. The idea of state intervention in the markets — once anathema to free market purists – has become accepted, provided it is limited in its scope and eventually comes to an end. Stimulatory measures are still being wound up a full nine years later as the US Federal Reserve has signalled that interest rates are once more on a gradual upward slope.
The effect has been to return the markets to a more "normal" state of volatility as bond yields have begun to rise and share prices have been in a state of correction for some months.
These days, there is a growing chorus of voices that the markets have been kept artificially high and are ready for a major correction into bear territory. But even if other measures are used for the US markets, they suggest that they are in rude economic health.
Writing for Forbes, Raul Elizalde pointed out that a better measure might be the longevity of economic growth. According to the National Bureau of Economic Research, the US economy has been growing since June 2009, and at 110 months, the current expansion is the second-longest in the nation’s history.
Of greater significance for SA is the obvious question of what all this means for the global economy in general and emerging markets in particular.
All things being equal, such numbers from the US would have been good news for the rest of the world as its consumers bought more goods and investment abroad grew.
But all things are not equal. US President Donald Trump seems determined to limit the benefits of economic expansion to the US alone. He is fighting a trade war with the rest of the world, closing the US’s borders to citizens deemed undesirable and shrinking from that country’s traditional role in global security.
The result has been a riskier world, a substantial weakening of emerging market currencies and a decline in US direct foreign investment.
All of this bodes ill for SA, which depends on the export of resources for foreign exchange and on open markets for trade.
Yes, our stock market has also enjoyed a substantial rise in rand terms. But in March 2009, the rand was trading at under R10/$. It is at R14.36/$ as this is being written. This has not, however resulted in a rise in SA manufacturing and exports, which would have boosted the local economy.
Instead, we are saddled with growth numbers in the one percent range and a growing unemployment problem.
Raise a glass to the roaring US bull market, but remember that there is little to celebrate at home.