Investors Eye Longest Bull Market in History for S&P 500

Although legal developments for two former Trump advisers appeared to pressure U.S. stock futures slightly Wednesday morning, it has been relatively calm on the geopolitical front recently.

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Key Takeaways

  • Target shares rally after retailer posts strong earnings results.

  • The Federal Reserve is scheduled to release minutes of latest meeting this afternoon.


  • Consumer discretionary, industrial stocks help S&P 500 to intraday record Tuesday.


(Wednesday Market Open) It’s day 3,453 of the S&P 500 (SPX) bull market, and depending on how you measure it, that’s the longest on record.

So it may be time for a word of caution. Hitting a record by definition means that this bull market is aging. Of course, no one can predict the market or know how long this bull run might keep going. But it may be worth considering that all bull markets in the past, no matter how long they’ve lasted, have come to an end. It’s perhaps a reminder for long-term investors that market ups and downs tend to smooth out over the long run.

Although legal developments for two former Trump advisers appeared to pressure U.S. stock futures slightly Wednesday morning, it has been relatively calm on the geopolitical front recently. That comes against a backdrop of continued strong corporate earnings and data that show that the U.S. economy seems to be chugging along nicely even as inflation doesn’t appear worrisome. 

In earnings news Wednesday, Target (TGT) shares were up more than 6% in pre-market trading after the retailer issued a strong earnings report. Adjusted earnings per share came in at $1.47 on revenue of $17.78 billion. TGT was expected to report adjusted EPS of $1.40 on revenue of $17.29 billion, according to third-party consensus analyst estimates. As with Walmart, which saw shares rocket higher upon its earnings release last week, same-store sales were a bright spot. TGT said same-store sales rose at the highest level in more than a decade—13 years, to be exact—according to CEO Brian Cornell. 

Consumer Discretionary and Industrial Leadership

On Tuesday the S&P 500 touched an intraday record of 2,873.23. Maybe all the record talk sparked some optimism of its own. But the market was also buoyed during a day when market participants may have been exhibiting some optimism that the U.S. and China could make headway in trade talks this week. Also, worries about Turkey’s troubled economy and currency seemed to have receded. 

The consumer discretionary sector was the best performing of the SPX’s 11 sectors. The sector was helped by gains in homebuilders PulteGroup (PHM), Lennar (LEN) and D.R. Horton (DHI). They apparently got a lift from a Toll Brothers (TOL) results that showed the homebuilder beating earnings and revenue expectations.

The second best-performing sector was industrials, perhaps getting a lift as trade worries ebbed. Many industrial companies are sensitive to trade because they use inputs that could be subject to U.S. import duties, or they are multinationals and sell into foreign markets that have their own duties on imported goods. In another apparent boost for U.S. multinationals on Tuesday, the U.S. dollar weakened, which can help make goods they sell to other nations more competitive.

Fed Watching

With the earnings and economic calendar light this week, investors may have more time for Fed watching. 

Minutes from the August Fed meeting are scheduled for release this afternoon. Plus, the Fed’s annual Economic Policy Symposium begins Thursday in Jackson Hole, Wyoming. Fed Chair Jerome Powell is scheduled to speak Friday morning.

Areas of focus for investors may be any comments about cost pressures and wage growth, especially with what company leadership has said during the recent earnings season about higher materials and pay costs as inflation has climbed above the Fed’s long-term goal of 2%.

FIGURE 1: Figure 1: Lucky Seven: Nearly seven months after setting its last all-time high in late January, as seen in this year-to-date chart, the S&P 500 Index (SPX) posted a new all-time intraday high Tuesday, topping the old one by about a point. Data Source: S&P Dow Jones Indices.  Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

Measuring the Bull: Apparently not everyone sees today as the advent of the new longest bull market in history. Although many classify the decline from July 16, 1990, to Oct. 11, 1990, as a bear market, others take a stricter interpretation and say it was only a very deep correction because it was only a 19.9 percent dip on a closing basis instead of a 20% decline they say would mark a true bear market, according to investment research firm CFRA. That would mean the current bull market would have to wait until April 3, 2021, and last 4,407 days before setting a new record, the firm said. But as CFRA points out, there isn’t an official body within the industry to rule on such things, rounding takes the fall to 20%, and the dip cost the market more than half of what it had gained in the prior bull market, a statistic no other deep correction can match. “Will 8/22/2018 mark the longest bull market since WWII?” CFRA asks. “We think so, but we respect the opinions of those who don’t. In the long run, is it really that important?”

Homebuilders Jump On Earnings Ahead of Data: The housing market is a key part of the economy, and Tuesday’s bump in homebuilder share prices comes as the housing market faces headwinds. Sales have been struggling on lack of supply, according to a recent note from Wells Fargo Securities. “Another factor to watch is whether higher home prices and rising mortgage rates are serving to erode demand,” the note said. A report on July new home sales is expected Thursday, on the heels of today’s release of existing home sales. New home sales are expected to come in at a seasonally adjusted annual rate of 645,000, up from the prior month’s 631,000, according to a consensus of economists polled by Briefing.com.

Tech Gains Small, But No Sweat: On Tuesday, when seven of the 11 SPX sectors were in the green, information technology shares posted the smallest gains, rising just 0.07%, even though all three major U.S. indices rose more strongly. Arguably, that could be interpreted as a sign of the overall market health. Tech stocks are often looked to as leaders of market direction because companies in the sector have such huge market capitalizations and are so widely held. So it’s encouraging that on a day when the sector was just a bit above flat, other parts of the market were doing better. It could be a sign that investors may be comfortable rotating money between sectors, which can often help the overall market to be more resilient during harder times. 

Good Trading, 

JJ

@TDAJJKinahan 

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Economic Calendar for this week. Source: Briefing.com
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