The ninth year of the post-crisis bull market begins on Tuesday.
Monday marked the eighth anniversary of the generational bottom reached in the S&P 500 following the financial crisis. Since then, $21 trillion in market capitalization has been added to global stocks, according to data from the NYSE.
This week, investors are dealing with a quieter calendar as most of the market’s attention will be focused on Friday’s February jobs report, which is expected to confirm a rate hike from the Federal Reserve in its next policy announcement on March 15.
The economic data calendar is fairly quiet, with January’s trade balance and the latest reading on consumer credit balances set for release.
Do politics matter?
In recent weeks, the seeming chaos of the Trump administration and its efforts to further some of its key economic items — tax reform, health care reform, infrastructure spending — have been countered by the continued push higher by the stock market.
Last week, for instance, stocks had their best day of the year following a speech from President Donald Trump that was vague on any policy specifics. Some might think these are incongruous outcomes, but it’s been clear that markets and politics have been diverging for some time. And it’s not certain why this would cease to be the case.
“The fate of the US stock market tends to be determined by economics rather than by politics,” writes John Higgins at Capital Economics.
“As a result, it should not be surprising that shareholders have shrugged off both Trump’s recent spat with the judiciary and the various malpractices that are alleged to have taken place in the run-up to the elections.
“Admittedly, these events have been compared with two historical ‘crises’, which were accompanied by much lower equity prices. But those crises — Roosevelt’s attempt in 1937 to appoint more judges to the Supreme Court and the Watergate scandal of 1973/4 that prompted President Nixon to resign — coincided with a recession, which we are not forecasting.”
We’ve noted recently that market history tells us most years see a pullback of some kind, as just once in the last 89 years has the market not dropped more than 4% from peak to trough. Three-quarters of the time, the market drops 10% or more intra-year.
But these drops don’t come out of nowhere.
It will take some sort of event — a real policy failure, market-wide concern about the economy, worries over how fast the Fed is moving — to move markets. Mere concerns about market pricing are rarely an adequate catalyst for changing prices within a given market. And, to this end, so too are concerns over politics an inadequate excuse for selling U.S. equities.
“Economic fundamentals have typically mattered more [than politics] for equity prices,” Higgins writes.
“And we assume that this will remain the case. Our forecast that the US economy will expand at a heathy clip over the next couple of years therefore leads us to conclude that the stock market is unlikely to come crashing down any time soon, even though we doubt that the recent euphoria will last.”
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
Read more from Myles here:
- The Fed is embarking on a path that usually ends in recession
- Markets continue to love Donald Trump
- What record stock prices mean for your retirement
- 2017 is a ‘tipping point’ for America’s distressed retail industry