By Aidan Hackett. Edited by Arjun Chandrasekar.
From the 9th of March 2009 to the 20th of February, the US stock market grew almost 4 times – 380%. By pure length of time, this is the longest bull market in history, standing at exactly 4,000 days. In terms of returns generated by a single bull market, this run is second only to the bull market of the 1990s that was ended by the tech-wreck at the turn of the century.
So what happened to the run of good returns? This was in early 2020, so no prizes for correctly guessing that Coronavirus, a worldwide pandemic that caused the shut down of major global industries for months, caused an economic decline. On the news that death tolls were rising, borders were closing, business was shutting down indefinitely, the market fell by 34.5% in just over a month, hitting the bottom on the 23rd of March – about two weeks after the Federal Reserve started printing money and buying assets left, right, and centre to stimulate the economy and encourage spending. Add in stimulus checks, a vaccine, and most of the world making a return to normal, the S&P500 has rebounded, starting a new bull run returning 94% as of the 13th of August.
What is a Bull Market?
By definition, a bull market is a market where stocks rise by 20% on either side of stocks falling by 20%, so you can only call a bull market over in hindsight. It is important to note that many bull markets do experience declines – the last bull market had 6 declines of 10% or more. These are called corrections. In practice, a bull market is characterised by investor confidence, optimism, liberal spending and investing, and a general sense of wealth.
While bull markets can be in anything – commodities, government bonds, the price of vintage Aston Martin cars, generally bull markets that are spoken about are those of indexes of publicly trades companies, like the S&P500, NASDAQ, NIKKEI, or the DAX. Because the success of all these large companies are dependent on the public buying their products, or associating with them monetarily in some way, when they do well, it is an indicator of people being willing to spend – willing to buy things and trade with one another. When these indexes contract, it is because the companies they are comprised of see their share prices fall.
What Caused the Bull Market from 2009 to 2020?
- Optimism. Positive market sentiment lifts prices for most companies – a rising tide lifts all boats. Because investors are optimistic about the market and confident that they will get better returns being invested in stocks than in a bank, stocks prices rise. Moreover, people are now more willing to spend money as they are not worried they will need large cash reserves to fund a lifestyle in a country experiencing a recession.
- Euphoria. When optimism becomes unrealistic and unchecked, euphoria often follows. This leads stocks to become overpriced, people to become careless with their money, throwing it around into any old company because “stocks only go up – it’s a bull market”. This type of mentality usually precedes a correction or a bear market.
Scepticism lingering from the GFC also caused the bull market to last longer. Bear markets are bought into existence by overvalued stocks. While the valuations can change because of external factors – geopolitical instability, interest rates rising, high inflation, etc., they can also be overvalued due to people buying to much – they’re euphoric. The lingering scepticism of the financial institutions from the GFC in 2008 would have caused people to not be so liberal with their margin borrowing and be more willing to put money into the bank than into the stock market. This participation in the stock market, or lack thereof, was a key reason why stocks didn’t get artificially overpriced by people buying them because they had no better place to park their money. While this scepticism caused compounded annual returns to be lower than usual 16% compared with an average of mid 20%’s for all bull runs, it caused the run to be longer.
An important thing to note is how the attitudes towards stocks, and how willing people are to buy them has shifted greatly since 2008 – shares are easier than ever to buy, and people are the time and money to do their own analysis and learn about markets. The exact factors that caused euphoria to not artificially pump up the stock market are now reversed. While this does not mean the market is overpriced, it is some food for thought.
To wrap things up, bull markets are those that are characterised by good returns, positive market sentiment, confidence, and general optimism. In the years between 2009 and 2020, stocks grew at an average rate of 16%, compounding to quadruple investment in SPY in that time period. Brought on by the public once again trusting the markets to not implode or deceive them, and maintained by a lingering sense of scepticism of financial institutions, the longest bull market in the history of US stocks took place.