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A Trip to 8-Year Bull Run: What's Up, What's Down

Sweta Killa

After endless woes, the U.S. stock market revived over the last eight years – and how!

While all the three major indices – S&P 500, Dow Jones Industrial Average and Nasdaq – more than tripled scaling multiple highs in recent months, Nasdaq has won the maximum in the eight-year bull run, gaining about 361% since hitting a low of 1,265.52 on March 9, 2009.

Investors should note that the latest round of rally, primarily driven by Trump, has brought in about $3 trillion to the stock market. With this, the total market cap of the S&P 500 increased to $21 trillion from $5.89 trillion eight years ago. The index gained 250% representing the fourth-best bull run.

The Wall of Hurdles

Over the past eight years, a number of obstacles kept on blocking the road of the bulls. These include a government shutdown, debt crisis, the Middle East conflict, China turmoil, recession in Japan, geopolitical tensions in Ukraine, the oil price carnage, political turmoil in Greece, a strong dollar, weak corporate earnings and Brexit.

In fact, some events led to a market crash now and then. For instance, the scary start to 2016 is still fresh in our memories. The S&P 500 and the Nasdaq had recorded their worst New Year’s Day in 15 years and Dow Jones had seen the worst start since 2008. The turmoil continued and sent the major U.S. bourses into a bear territory on February 11, 2016 with a drop of more than 20% from the last peak, threatening the longevity of the bull run.

Achievements

Needless to say, the stock market has bravely overcome all these obstacles and economy has come in long way, emerging from the ills of the financial crisis and the Great Recession. This has been primarily driven by robust job gains, rising wages, slowly rising inflation, increasing consumer spending, a thriving auto industry, a recovering housing market and a record level of consumer confidence.

Notably, the unemployment rate fell to 8.3% from 10% in October 2009 while GDP growth rose to 1.9% in the fourth quarter of 2016 from a contraction of 5.7% in March 2009.

Americans have an optimistic view of the economy with confidence hitting the highest level in more than 15 years. This is especially true as the Conference Board consumer confidence index jumped to 114.8 in February from a revised 111.6 in January, suggesting growing optimism on pro-growth policies.

Additionally, fourth-quarter corporate earnings have made a strong comeback setting an all-time quarterly record with the highest growth in two years. Further, oil price has shown impressive strength roaring back to $55 per barrel from hitting a 12-year low of under $27 per barrel.

Added to the most happening event is the Dow Jones’ hitting three major milestones – 19,000, 20,000 and 21,000 – in just four months since the November election on Trump trade. Notably, the journey from 20,000 to 21,000 came in just 24 trading sessions, marking the fastest move of 1,000 points since 1999.

The bullish trend is likely to continue thanks to high hopes on Trump’s pro-growth policies and the Fed’s monetary policy. The Fed is expected to raise interest rates as early as this month, confirming an improving economy and a lower risk of deflation and suggesting another spate of rally in the coming year. However, volatility persists given Trump’s anti-trade and protectionist policies, a slew of elections in Europe, geopolitical tensions and threats of political instability.

Winners & Losers

While all the sectors flourished during the second longest Bull Run in history, consumer discretionary and information technology companies led the way, soaring 259% and 251%, respectively, over the past eight years. Currently, the consumer discretionary sector has a worst Industry rank in the bottom 38% while information technology sector boasts a solid Industry rank in the top 31%.

Coming to individual stocks, the best performer is drugmaker Incyte INCY that has weathered all the storms and emerged as the biggest winner as per the S&P Dow Jones Indices’s Howard Silverblatt. The stock registered an astonishing return of 6455% but currently has a Zack Rank of #5 (Strong Sell). This was followed by equipment rental giant United Rentals URI and biopharma firm Regeneron Pharmaceuticals Inc. REGN that soared 4,183% and 2,980%, respectively. Both stocks have a Zacks Rank #3 (Hold).

Among the worst performing S&P 500 stocks, a few energy companies such as First Solar FSLR, Southwestern Energy SWN and Chesapeake Energy Corporation CHK shed 74.8%, 72.8%, and 57.8%, respectively. Each of these three has a Zacks Rank #3.

Coming to the ETF world, value style investing gained immense popularity with Guggenheim S&P 500 Pure Value ETF RPV and Guggenheim S&P SmallCap 600 Pure Value ETF RZV  delivering returns of over 460% over the eight-year period and carrying a Zacks Rank of 3. However, solar ETFs performed terribly losing 73.2% in case of VanEck Vectors Solar Energy ETF KWT and 66.9% in case of Guggenheim Solar ETF TAN. TAN has a Zacks Rank of 5.

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