As of the end of trading on August 21, 2018, this edition of the bull market in U.S. stocks that began on March 9, 2009 has become the longest bull market in history. The Dow Jones Industrial Average has risen from roughly 6,500 to almost 26,000, and the S&P 500 has risen to 2,862 from the auspicious 666, a gain of roughly 330%.
What is a bull market?
Sometimes these terms get bandied about and we can get lost in the jargon, so let’s actually define a bull market. A bull market is simply a rising stock market that avoids a 20% or more decline. Once you cross that 20% threshold, a bear market is said to begin. By that definition, the current bull market has lasted 3,453 days as of August 21, 2018 as we have technically avoided a 20% decline on a closing basis.
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We have had our fair share of scares
But that doesn’t mean we haven’t had large pullbacks during this run. In fact in we had greater than 15% declines during 2010 and 2011, 14% declines in 2015-2016, and the most recent 10% decline from January 26, 2018 to February 8, 2018. The impressive thing about this bull market is the fact that we in the United States were so fragile post the Great Recession, but stocks remained resilient and continued to follow company fundamentals rather than succumb to the myriad new crises we have endured during this time.
10 years from Lehman’s collapse and stock market returns look really good
The investment bank Lehman Brothers collapsed on September 15, 2008. This is widely seen as the proverbial hair that broke the camel’s back and sent us reeling into the Great Recession and almost claimed the entire global financial system. One might think, given how painful this period of time was that if you held stocks through that event, you would have lost money. But as of August 21, 2018, the trailing 10-year annualized return of the S&P 500 is 10.8% (including dividends). It goes to show you that patience is usually rewarded when it comes to investing in stocks. Those who sold their investments at the height of the panic have had a hard time fully recovering.
This bull market can’t last?
Given the length of time stocks have been rising, the chorus of negativity is loud when it comes to the continuation of the old bull. You will hear over and over again that “bull markets don’t die of old age” and this is true. Recession is the main killer of bull markets. So, if you think that this run is simply going to stop because of the calendar, you might want to check the economic strength in the United States. I would direct you to Pathlight’s most recent recap of 2nd quarter earnings https://pathlightinvestors.com/second-quarter-earnings-continue-to-impress/ and also to the strength being shown specifically by our largest retailers (their 2nd quarter results are below). The US consumer is alive and well, and that bodes well for the continuation of this bull market.
Select Retail Earnings:
Walmart – Wal-Mart beats by $0.07, beats on revs; raises FY19 guidance (90.22)
- Reports Q2 (Jul) earnings of $1.29 per share, excluding non-recurring items, $0.07 better than the S&P Capital IQ Consensus of $1.22; revenues rose 4.2% year/year to $127.06 bln vs the $124.67 bln S&P Capital IQ Consensus.
- U.S. comps were +4.5% vs. estimates for +2.4%, led by the performance of grocery, apparel and seasonal. Strong comp sales were supported by traffic and ticket growth as each exceeded 2.0%. Sam’s Club comp sales increased 5.0%, the strongest growth in six years.
- Co raises guidance for FY19, sees EPS of $4.90-5.05 (Prior $4.75-5.00), excluding non-recurring items, vs. $4.80 S&P Capital IQ Consensus; sees consolidated net sales +~2% in CC (Prior +1.5-2% in CC), sees Walmart US comp sales (ex-fuel) +~3% (Prior up at least 2%), sees Sam’s comps +~3% (Prior down 1% to flat). The guidance does not include the expected impact of the company’s investment in Flipkart, including interest related to the purchase, as the transaction has not yet closed.
Target – Target beats by $0.07, beats on revs, comps +6.5%; guides Q3 EPS in-line; raises FY19 EPS guidance (83.27)
- Reports Q2 (Jul) earnings of $1.47 per share, excluding non-recurring items, $0.07 better than the S&P Capital IQ Consensus of $1.40; revenues rose 6.9% year/year to $17.78 bln vs the $17.33 bln S&P Capital IQ Consensus.
- Second quarter sales growth reflected comparable sales growth of 6.5% (vs. estimates for +4.2%) combined with the contribution from non-mature stores.
- Traffic growth of 6.4 percent is by far the strongest since the Company began reporting traffic in 2008.
- Co raises guidance for FY19, sees EPS of $5.30-5.50 (Prior $5.15-5.45), excluding non-recurring items, vs. $5.30 S&P Capital IQ Consensus.
Macy’s – Macy’s beats by $0.09, reports revs in-line; raises FY19 guidance (41.82)
- Reports Q2 (Jul) earnings of $0.59 per share, excluding non-recurring items, $0.09 better than the Capital IQ Consensus of $0.50; revenues fell 1.1% year/year to $5.57 bln vs the $5.55 bln Capital IQ Consensus.
- Comparable sales on an owned basis that were flat vs. -0.7% estimates. On an owned plus licensed basis, comparable sales were up 0.5% for the second quarter of 2018. Due to the 53-week calendar in fiscal 2017, there have been some timing adjustments in the co’s typical promotional calendar, including the shift in the spring Friends & Family promotion. As reported earlier, this shift caused a positive impact in the first quarter of 2018 of ~250 basis points. The shift also caused a negative impact of ~240 basis points in the second quarter, as compared to 2017. Adjusting for this shift, the company estimates that comparable sales on an owned plus licensed basis were up 2.9% for the second quarter. When looking at the first half of 2018, comparable sales on an owned basis were up 1.9% compared to the first half of 2017. On an owned plus licensed basis, comparable sales were up 2.3% for the first half of 2018.
- Co issues guidance for FY19, raises EPS to $3.95-4.15, excluding non-recurring items, from $3.75-3.95 vs. $3.87 Capital IQ Consensus Estimate; sees FY19 revs of +0.0-0.7% to ~$24.84-25.02 bln (from down 1% to up 0.5%) vs. $24.87 bln Capital IQ Consensus. Comparable sales on an owned plus licensed basis are expected to increase between 2.0 and 2.5% for the second half of 2018, which translates to an annual increase of between 2.1 and 2.5% (up from +1-2%). Comparable sales on an owned basis are expected to be 20-30 basis points below comparable sales on an owned plus licensed basis in fiscal 2018, which is consistent with prior guidance.
Nordstrom – Nordstrom beats by $0.11, reports revs in-line; raises FY19 guidance (52.28 +0.42)
- Reports Q2 (Jul) earnings of $0.95 per share, $0.11 better than the S&P Capital IQ Consensus of $0.84; revenues rose 7.1% year/year to $3.98 bln vs the $3.96 bln S&P Capital IQ Consensus. This reflected a favorable shift of ~100 bps primarily due to the impact of the new revenue recognition standard as it relates to the timing of the Anniversary Sale. This impact is expected to fully reverse in the third quarter.
- Comparable sales increased 4.0% vs. +1% estimates. Comparable sales are reported on a like-for-like basis with no impact from event shifts due to the 53-week calendar in 2017 or revenue recognition.
- Co issues guidance for FY19, raises EPS to $3.50-3.65 from $3.35-3.55 vs. $3.46 S&P Capital IQ Consensus; raises FY19 revs to $15.4-15.5 bln from $15.2-15.4 bln vs. $15.78 bln S&P Capital IQ Consensus; raises comps to +1.5-2.0% from +0.5-1.5%.
If you are concerned about the length of the bull market, why not download our free report Lessons for the Next Crisis
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