As many of us were enjoying the final days of the summer of 2018 a historical moment came to pass on the 22nd of August. It was the day that we entered the longest bull market in the history of the S&P 500.[1]  Sure there have been a few bumps in the road along the way, however it is quite remarkable to take stock of the 302% climb from the low reached on March 9, 2009 until now. But what does this mean for investors[2] and is there still time to participate in further growth? Or is it time to take profits out and wait for a correction?

Is time really a factor to be considered when analyzing the state of the markets? Generally speaking the answer is no. Although bull markets that have lasted for an extended period can cause investors to speculate on how much longer it can last, generally time is not a factor in a bull run. It is simply a matrix by which we use to observe markets and relay the information back to investors. Markets tend to rise as a consequence of higher corporate revenue and profitability often with coincidently accommodative economic conditions.[3]

The present macroeconomic backdrop behind the market appears solid.  With US GDP reported at 4.2% in the past quarter and the unemployment rate at 3.9%, it’s hard to argue why the market is up as far as it is this year.[4] Although the pace of growth is expected to slow to 3% in the coming quarter, consumers remain optimistic that growth will remain positive for some time as the fiscal stimulus from tax reforms have only begun to permeate through to the economy.[5]  Adding to this, the FED continues to be accommodative in its rate policy. Despite having already raised rates and forecasting more hikes to come, the pace of monetary tightening has been measured, and rates remain low allowing consumers and business to continue spending. The goal of the FED appears to be normalizing rates to give them some ammunition to fight a future crisis. But their intention does not appear to be hawkish tightening which would restrain economic growth in any meaningful way. Not to be ignored in all this are corporate profits. Profits in corporate America are expected to rise by 22% in 2019 according to Bank of America Merrill Lynch.[6] Markets generally rise as a reflection of expected future profitability and these projections suggest some rosy days to come.  All this taken together is highly suggestive of continued growth in the market.

While recessionary signs are not present in the market at this time, investors should still remain vigilant to the trade tensions between the United States and many of its allies. A full-scale trade war could tip the scales towards an economic slowdown which could put a quick end to this enormous run. With this in mind, it’s also important to consider that some sectors of the market could profit greatly from an end to the trade rhetoric. The financial sector, industrials as well as energy are all projected to see increased earnings in 2019. The prospects for stocks in these sectors are already very good. Add an end to the uncertainty over trade wars and it would make these sectors even more attractive investments. An end to trade uncertainty could also prove positive for information technology stocks given the global nature of their businesses.[7] Suffice to say that this bull market still has plenty of reasons and capacity to move higher to the benefit of market participants.

All things considered the US stock market should produce gains for investors in 2018 given the earnings growth momentum across the various sectors on top of the tax reform recently legislated. Once new leaders congruent with the present market cycle emerge, investors could be richly rewarded for their patience and discipline.

Many Canadian investors have watched from the rise of the US markets from the sidelines. The Toronto Stock Exchange has struggled to gain any traction in 2018 compared to our neighbours south of the border. The year to date return of the TSX at the close of business on September 5th, 2018 was -0.63%[8], while the S&P 500 has returned 7.5% to investors over the same time period.[9] NAFTA negotiations are getting back on track in September and there is reason for optimism that a deal could emerge. Such a deal could set Canadian stocks up for a strong rally in the quarters to come.

In this historic age for the US markets there is reason to celebrate. It is important that we examine how we got here and not to forget to reassess our paths moving forward. Investors who have profited from the rise and those that have yet to participate should consider their goals and talk to their trusted professionals to help keep their investments working hard and in their best interests.

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This commentary is provided for informational purposes only and is not an endorsement of any security or sector. The opinions expressed are those of Manulife Private Wealth as of the date of writing and are subject to change. The information in this document including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. This material does not constitute an offer or an invitation by or on behalf of Manulife Private Wealth to any person to buy or sell any security. Past performance is no indication of future results. The information and/or analysis contained in this material have been compiled or arrived at from sources believed to be reliable but Manulife Asset Management does not make any representation as to their accuracy, correctness, usefulness or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein. Neither Manulife Private Wealth or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained herein. Please note that this material must not be wholly or partially reproduced.