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

2019-03-19 10:02
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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.


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.

Funds related to US Equities

JPM US Technology Fund A Dis USD
Threadneedle (Lux) American Fund DU Acc EUR
Threadneedle (Lux) American Select Fund DU Acc EUR
Aberdeen Standard SICAV I – North American Equity Fund D2 Acc GBP
Franklin Technology fund A Acc USD
Parvest Equity USA Growth Classic Cap USD
Fidelity Funds – American Growth Fund A Dis USD
Franklin U.S. Opportunities Fund A Acc USD
BlackRock Global Funds – US Growth Fund A2 Acc USD
Invesco US Equity Fund A Dis USD

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