Bloomberg Businessweek - USA (2019-12-23)

80

*WITH

CURRENT-PRICE

GDP

MEASURES;

DATA:

BLOOMBERG,

BAKER,

BLOOM

&DAVIS

At the start of the century’s troubled

teens, who would’ve predicted U.S.

stocks would lock themselves into the

longest bull market ever, setting record

after record with unprecedented calm?

Adjusted for risk—the price swings

investors had to endure—gains in the

S&P 500 index since Dec. 31, 2009, are

poised to be the highest of any decade

since at least the 1950s.

Stocks in the index have returned

252% in the past 10  years, about

1.2 times the historical average. And

the 2010s were the first decade with-

out a bear market, defined as a 20%

drop from any peak. Sure, there were

six 10% corrections, all hair-raising, but

none were bull-killers.

A measure known as the Sharpe

ratio shows the extent of the seren-

ity. It tracks stock performance rel-

ative to Treasuries and stock market

volatility. At about 1, the current

reading is the best of any decade

since at least Dwight Eisenhower’s

presidency, according to data com-

piled by Bloomberg. It shows that the

returns, as good as they were in abso-

lute terms, were even better consider-

ing how little they cost, so to speak, in

sleepless nights.

The doesn’t mean it was always

smooth sailing. There was the

May 2010 flash crash, Europe’s sover-

eign debt crisis of 2011–12, and China’s

currency devaluation in 2015. Now a

global trade war is renting psychic

space in investors’ heads. A lot of

◼ LAST THING

By Lu Wang

Celebrating the Longest,

Calmest Bull Market Ever

things that could’ve turned the world

upside down kept flaring up.

For a visual sense of how it all

felt, look at two gauges of anxiety.

One is an index of the frequency of

newspaper stories around the world

mentioning uncertainty about eco-

nomic policy. Unsurprisingly, it’s

shot sky-high over the past decade—

yet has had surprisingly little effect on

investors. Consider the Cboe Volatility

Index, or VIX, a measure of S&P 500

options costs that shows how much

volatility investors expect. While it’s

spiked from time to time, it’s generally

dropped back to low levels.

It all makes sense when consid-

ered alongside what central bankers

have been doing. Almost every time

something scary has hit the head-

lines,they’vesteppedin.Thelat-

est example:TheFederalReserve

madea U-turnonmonetarypolicy,

embarkingona rate-loweringcycle

aftertradeangstlastyearsentstocks

down9.2%inDecember,theworst

forthatmonthsincethe14.5%drop

in1931.Sogrowthscareshavebeen

justthat:scares.

Whileperceptions ofrisk were

high,fundamentalswerestable.U.S.

grossdomesticproductgrew1.6%to

2.9%ineachofthepreviousnineyears

andis expectedtodothesamein2019.

Basedonstandarddeviation,that’sthe

smallestfluctuationoverany10-year

stretchindatagoingbackto1930.

What’sthemessageforinvestors

inthelong,lucrativecalmafterthe

stormofthefinancialcrisis?“You

shouldbeaggressivewhenthingslook

thedarkest—that’s clearly a lesson that

works,” says Bill Stone, chief invest-

ment officer at Avalon Investment &

Advisory. “Of course, it’s impossible

to know that when you’re running in

real time.” <BW> �Wang writes about

U.S. equity markets for Bloomberg News

0.32

1960s

0.98

1990s

–0.03

1970s

–0.23

2000s

0.52

1980s

1.01

2010s

U.S. Stocks Have Had the Strongest Returns

Relative to Volatility Since the 1950s

Sharpe ratio for the S&P 500

UncertaintyIs High,butMarketVolatilityIsn’t

12/31/1999 12/13/2019

60

30

(^630)
Cboe Volatility Index (VIX) 301.5
Global Economic
Policy Uncertainty
Index*
8%
0
-4
1960 2018
U.S. GDP Growth Has Been Moderate and
Steady Since 2010
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