Noble Apex eNewsletter Issue 800- A 10-year review for U.S. bull market

2019-03-19 10:34
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18 March 2019 Issue 800

Global Market Commentary


  • US: US President Trump and General Finance Minister Steven Mnunchin said that there is a “rapid progress” on the trade negotiation with China. Moreover,  Beijing also claimed that substantial progress has been made. For the entire week, the Dow rose by 1.57% to 25,848.87. The S&P 500 index rose by 2.89% to 2,822.48. The Nasdaq rose by 3.78% to 7,688.53 points.
  • Europe: It is reported that Deutsche Bank and Commerzbank are discussing to merger, which brings a good news to the European stock markets. For the whole week, the UK’s FTSE 100 index rose by 1.74%, the German DAX index rose by 1.99%, and the French CAC40 index rose by 3.33%. The STOXX 600 index rose by 2.84% to 381.10 points.
  • Asia: Bank of Japan Governor Haruhiko Kuroda said that the Japanese economy still maintains a moderate expansion and it is believed that the 2% inflation target need not to be changed. Over the week, the Nikkei 225 index rose by 2.02% to 21,450.85 points. The MSCI Asia Pacific Index rose by 1.83% to 158.95.


  • US: The US economic data is not satisfactory, showing that the economy is slowing, the market is worried about the US economic prospect. Therefore, the price of US Treasury bonds rises, and the yield rate falls. For the whole week, the yield on the US 10-year government bond fell by 4 basis points to 2.593%.
  • Europe: The European Central Bank (ECB) has announced that it will not raise interest rates until the end of 2020, and will also cut its forecast for the economic growth rate of the euro zone from 1.7% to 1.1% this year. This has caused market doubts towards the economic prospect, the bond yield decreased continuously, but slightly increase this week. Throughout the week, the German 10-year bond yield rose by 2 basis points to 0.082%.


  • Oil: Data from US Energy Information Administration showed that US crude oil inventories fell unexpectedly by 3.9 million barrels last week, and the US crude oil production fell to 12 million barrels per day. Moreover, a large-scale power outage in Venezuela has seriously affected the crude oil export. Over the week, New York oil futures rose by 4.37% to close at $58.52 a barrel.


  • US dollar: US manufacturing output fell for the second consecutive month in February, and manufacturing activity in New York State was weaker than expected, which further indicating that the US economy experiencing a slowdown at the beginning of the first quarter. For the whole week, the Dollar Index fell by 0.731% to 96.595.
  • China: The US dollar is weak, and the substantial progress in the Sino-US consultation has helped stabilize market expectations. For the whole week, the yuan rose by 0.109% against the US dollar to 6.714.


Economic-related News

  • US: Trump first exercised the president’s veto power on Friday, preventing the Congress from overthrowing the national emergency order. Building the US-Mexico border wall is the core content of Trump’s 2016 campaign.
  • U.S: According to The Wall Street Journal, the US Department of Transportation is investigating the Federal Aviation Administration’s approval of the Boeing 737 MAX jetliners.
  • U.S: The Fed has been reducing debt assets accumulated during the crisis, and it may announce the end of this operation during the policy meeting in this week.
  • Euro-zone: British Prime Minister Theresa May plans to have the third vote in the parliament towards the Brexit agreement this week. May warned that the Brexit process may need a long time unless some of the members in the Conservative Party promise to support her Brexit agreement this week.
  • Euro-zone: Deutsche Bank and Commerzbank agreed to begin a formal merger consultation . It is also reported that the German government may continue to hold shares after the merger of the two major banks.
  • Euro-zone: Eurozone’s harmonised consumer price index growth stayed at 1.5% year-on-year in February, same as the initial value and in-line with market estimate, Eurostat data revealed.
  • Japan: The Ministry of Finance of Japan announced that Japan had a trade surplus of 339 billion yen in February, exceeding market expectations of 350.1 billion yen.
  • Japan: The Ministry of Economy, Trade and Industry announced that Japan’s third-industry activity index increased from 0.5% drop of the initial value to 0.4% increase in November, better than the market expectation of a 0.3% drop.
  • Australia: According to data from Westpac Bank and the Melbourne Institute, Australia’s consumer inflation forecast was 4.1% in March, up from 3.7% in February.


China Market Commentary
Economic-related news
• The South China Morning Post reported that the date of the trade-war-ending summit between Trump and Xi Jinping may be postponed to June, as the two sides could not reach an agreement before April.
• After the Shanghai Stock Exchange issued a formal acceptance of the application for the issuance and listing of the high-tech stock board, the symposium held on Saturday emphasized that the risk of prevention and control is the key of the establishment of the board and the pilot registration system.

A 10-year review for U.S. bull market

The unstoppable US bull market has just celebrated its tenth-year birthday last week, the longest equity bull market in U.S. history. Although this anniversary deserves a bit of an asterisk as the S&P 500 hasn’t closed above a record high since Sep 20, meaning that the bull could be already over last year. Nevertheless, general Wall Street believes that it might not be the time to exit the market altogether as recession risks remain low given the lack of significant inflationary pressures and financial imbalances. The US equities could still reach another record-high and expect to generate a mid-to-high-single digit annualized return over the next few years.

Looking back the last 10 years, despite the current bull market is not the strongest on record, the US equites has been by far the best performing asset in this cycle, significantly outperforming most other equity markets. The S&P 500 has more than quadrupled from the devil’s bottom of 666 (day-low) in March 9th 2009. The Dow has hyped by almost 300% and the Nasdaq has skyrocketed by nearly 5 times. The remarkable return reflects the slow-but-steady recovery in the economy as aided by the U.S. Federal Reserve’s extraordinary easing through asset purchases and rock-bottom interest rate. Besides, record corporate profits, tax reform and all-time high of stock buybacks activities have further drive up the US equities market.

Figure 1. US has been one of the best performing assets in current cycle

Source: Bloomberg, Noble Apex/iFund

Other interesting findings from the 10-year bull market in S&P 500:

    1. 1% annualized return for S&P 500 during the past decade, as S&P 500 has climbed by 306% in price. If including dividends, the annualized return would be 17.5% (i.e. 401% total return).
    2. Earnings growth was the key index driver. In contrast to previous cycles, where revenue growth was a key driver, earnings have driven about 73% of the 10-year gain in the S&P 500 index as trailing EPS jumped by 140% during the period. On the other hand, revenue increased by 43% and contributed 22% of the index gain, while margin expansion (by nearly 5%) contributed 28% of the rise. Only 19% of the index gain was led by forward P/E multiple expansion (10x to 16x).
    3. Technology sector has played a key role, which has a higher weight in the US market compared to other regions, contributed 22% of the index return during the last 10 years. Again, earnings growth accounting for 75% of the return, which have nearly tripled over the past decade. However, recent data shows that tech sector was not the most crowd sector anymore as fund manager positioning has gone back to May 2016 level.
    4. Financial sector is the second largest contributor, accounting for 15% of the index gain and earning growth was the key driver again.


    Figure 2. I.T sector is the key driver for S&P 500 in the last 10 years

    Source: FactSet, Noble Apex/iFund

    1. 10 stocks have accounted for almost 25% of the 10-year index return, namely Apple (5% of index return), Microsoft (4.2%), Amazon (2.2%), JPMorgan (1.7%), Johnson & Johnson (1.7%), Boeing Company (1.5%), Home Depot (1.5%), Intel (1.5%), UnitedHealth Group (1.2%) and Cisco System (1.2%).
    2. Yield gap is higher in current bull market, at 350 bp (6.1% S&P earnings yield vs. 2.6% 10- Year US Treasury yield) vs. 250 bp of the 40-year average.


    All in all, it has been hardly possible to know the beginning nor ending of a bull market. As we mentioned before, business and stock market cycles do not die from old age alone, but they have unravelled as a result of financial extremes, debt crises, war, economic shocks or even excessive monetary policy changes.





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