Market Commentary: Bull Keeps Going, 15 Years Since Global Financial Crisis

Bull Keeps Going, 15 Years Since Global Financial Crisis

The Bull Keeps Going

We sound like a broken record, but that could be a good thing in a bull market, as stocks made more new highs last week. In the end, the S&P 500 closed marginally lower for the week after a late Friday afternoon sell-off. But stocks have been up 16 out of the last 19 weeks, rising more than 24% during that rally. In the history of the S&P 500, stocks have never risen that quickly with such consistent weekly gains.

  • The bull run continued last week, with more new highs before a sell-off on Friday.
  • Although conditions are quite stretched near term, we continue to expect higher prices in 2024.
  • 15 years ago, stocks bottomed after the vicious bear market of the global financial crisis.
  • The latest jobs report surprised to the upside, with 275,000 jobs created in February and an average of 265,000 created over the last three months.
  • The unemployment rate rose to 3.9%, but the job market overall still looks solid with minimal concern that wage growth will push inflation higher.
  • The bottom line is the economy is strong because the labor market is strong.

As laid out repeatedly in these missives, we remain bullish and expect continued price gains. But we believe it’s valuable to take a step back and appreciate the rarity of this market’s strength. The S&P 500 is up nearly 25% since the late October lows. A gain of 25% would be a great year, but that has taken place in just 19 weeks! This run can’t last forever. There will be a well-deserved break. In fact, that would be perfectly normal. When stocks finally do pull back, don’t panic. It is part of the process. We’d even suggest using any weakness as a potential buying opportunity.

Here’s another way of showing that the move off the October lows indeed could be a bullish clue. We found 20 other times stocks gained at least 20% in 19 weeks. It turned out the future returns after such strong performance have also been extremely strong: higher six months later 19 times and higher a year later 18 times, both with attractive average returns. The bottom line: The strength we’ve seen lately isn’t the end of a bull market or a bear market rally (if anyone is still making that argument); it is likely the beginning of a larger bullish move higher.

15 Year Ago, A Vicious Bear Market Ended

One of the worst bear markets in history ended 15 years ago on Saturday. The S&P 500 fell an eventual 57% from its October 2007 peak before bottoming on March 9, 2009, and finally ending the global financial crisis (GFC) bear market. For anyone who remembers that time, it was truly a frightening period in history. Bank stocks were outright collapsing, with many down 90%. The global economy was in shambles, and people were losing their jobs all around. Retirement funds had been demolished and there was very little hope.

But like all bad things, it eventually came to an end. As a result of the tech bubble bear market earlier in the decade and the GFC, the 2000s went down as one of the worst decades for stock investors, even worse than the 1930s!

Benjamin Franklin once said, “There are no gains without pains.” In part due to that lost decade, investors felt plenty of pain, but we’ve experienced incredible gains since. In fact, the S&P 500 is up more than 900% on a total return basis the past 15 years. But it wasn’t a straight line higher. We had many scares along the way. Near bear markets in 2011 and 2018, a 100-year pandemic bear market in 2020 and then another bear market in 2022 made it anything but an easy 15 years. Yet, longer-term investors have once again been rewarded for sticking to their investment plans.

It’s Simple: The Economy Is Strong Because the Labor Market Is Strong

While it seems most people are waiting for the proverbial other shoe to drop, the economy keeps surprising to the upside. That’s been a theme over the last year. The big “risk” right now is that people continue to underestimate the strength of the economy, even as the consensus moves toward where the economy has actually been since late 2022.

Case in point: the February jobs report. The economy created 275,000 jobs in February, well above expectations for an increase of 200,000. Payroll gains for January and December were revised lower, but that’s why we rely on three-month averages. The three-month average of job growth is running at 265,000. For perspective, monthly job growth in 2019 averaged 166,000.

The naysayers may argue that the unemployment rate rose from 3.7% to 3.9%. That is true, but 3.9% is still strong and the unemployment rate has remained below 4% for 25 straight months. Plus, the rate increase was due to a jump in unemployment rates for young workers, which are always volatile. For 16–19-year-olds, the unemployment rate rose from 10.6% to 12.5%, and for 20–24-year-olds, it climbed from 5.9% to 7.25%. For everyone else (25 years and older), the unemployment rate was unchanged at 3.2%.

Definitional issues around labor force participation (how the unemployment rate is calculated) and demographics (an aging society, with more people retiring every day) is why I prefer the prime-age (25-54 years) employment-population ratio. It’s a more straightforward measure, which indicates how many people in their prime working years are employed relative to the population. That went up from 80.6% to 80.7%, which is higher than at any point between July 2001 and February 2020. That is a powerful indicator of the economy’s strength.

What Does This Mean for the Federal Reserve?

The strong labor market raises the question as to whether the Federal Reserve will cut interest rates this year. We think that’s still in the cards. We can take Fed Chair Jerome Powell’s words for it, from his semi-annual Humphrey-Hawkins report to Congress and Senate this week. Powell said inflation is progressing lower, and while Fed members are not ready to cut rates yet, they are well aware of the risk of waiting too long and they “can and will” start lowering rates this year. That led to yet another record high for the S&P 500 on Thursday, its 16th record close of the year.

In short, it’s still about inflation, and the forward-looking data suggest it’s likely to continue its downward trend. I wrote about this after the “hot” January inflation data were released.

Even connecting the labor market to inflation, wage growth is not surging. To break it down, income growth across the economy is a sum of:

  • Employment growth
  • Wage growth
  • Growth in hours worked

Over the last three months, income growth has run at an annualized pace of 4.7%, putting it right at the 2018-2019 average. That’s a sign of a strong economy, but not enough for the Fed to be overly concerned with wage growth threatening to push inflation higher.

We’ll end with this. As mentioned above, the prime-age employment-population ratio is above anything recorded over the last two cycles. For women, that ratio is 75.2%, very close to the record high, a noteworthy statistic as we celebrated International Women’s Day last week.

Overall, we continue to enjoy a strong job market with a so-called Goldilocks level of wage growth that’s strong enough to support consumer spending but not so strong that it threatens another surge of inflation. That’s a solid foundation for additional economic gains that ultimately could push stock prices higher.


This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.

A diversified portfolio does not assure a profit or protect against loss in a declining market.

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