- Home Sweet—Pricey—Home: Existing Home Sales Fall as Prices Rise
- The Longest Running Bull Market?
- Weighing the Stock Market Impact of Impeachment
- Looking Ahead: Consumer Data, Revised GDP Growth and Inflation
Call it the longest running bull market or not, this week, U.S. stock gains were once again welcome news. While the Dow Jones Industrial Average and the S&P 500 index both drew closer to surpassing their January price highs—the S&P 500 actually hit a couple of records earlier this week when you consider dividends—and smaller stocks set records of their own.
Investors continue to show remarkable resilience despite having been put through domestic and geopolitical ringers. That’s good news, given that we expect more nerve-wracking days ahead of the November midterm elections. Increased investor stress could cause duress for the market, but healthy economic fundamentals—earnings, interest rates and other data—continue to reflect and support the potential for further stock gains.
For the year through Thursday, the Dow Jones Industrial Average has returned 5.4%, while the broader S&P 500 index has gained 8.2%. The MSCI EAFE index, a measure of developed international stock markets, has fallen 3.0%. The 3.27% yield on the Bloomberg Barclays U.S. Aggregate Bond index on Thursday is more than a half of one-percent higher than its 2.71% yield at 2017’s year-end. On a total return basis, the U.S. bond market has declined 0.8% for the year.
Home Sweet—Pricey—Home: Existing Home Sales Fall as Prices Rise
Recent data on the housing market showed sales of existing homes fell for the fourth consecutive month in July; down 1.5% from the same time last year. While rates on 30-year fixed mortgages are up about 17% from the same time last year, at around 4.6%, they remain low and accommodative for buyers. We think the slowdown in home-buying is the result of a dwindling supply of inventory and sky-high prices—compared to last July, the median sales price is up 4.5%—pushing potential buyers to the sidelines.
Higher prices could lead to lower prices, which in turn could lure potential, well-employed buyers back into the marketplace. In our analysis, the recent downtick in sales is not based on any deterioration of either the health of our economy or that of a well-employed consumer. While July’s decline in existing home sales is a crack in one cornerstone of the U.S.’s ongoing economic expansion, we think it will likely be repaired as buyers return to the marketplace.
The Longest Running Bull Market?
You’d have to have spent the last week in a complete news blackout to have missed the avalanche of stories about the bull market hitting a record for duration, as well as counterclaims that it actually didn’t do so.
Technically speaking, we’re in the “it’s not a record” camp, as the 1990 to 2000 bull market that many say was the longest to date actually started in 1987. The market fell 19.9% in 1990 and 19.3% in 1998, but it never crossed the (completely arbitrary) 20%-plus-decline line in the sand that Wall Street uses to define a bear market. So the longest bull market, in our eyes, ran 13 years.
Another way to measure this bull market is by the magnitude of gains. The returns of the current bull market, using the S&P 500 index, clock in around 320%—nowhere near the 580% gain experienced in the 1987 to 2000 rally. By that measure, we have far further to go on the records front.
In the end, the debate makes for good lunchroom banter, but what is most significant is the unquestionable length and largesse of this recent bull market—something we can all be thankful for. The slow growth, not no growth economy we’ve enjoyed over the last nine-plus years has been one reason we’ve had such a long stock market advance. Stretch out our current economic recovery, and you can also stretch out the market recovery.
Weighing the Stock Market Impact of Impeachment
Headlines concerning the impeachment of President Trump became more vociferous this week. The conviction of Paul Manafort and plea deal by Michael Cohen (President Trump’s one-time campaign manager and personal attorney, respectively) have led many to speculate on the president’s conduct and potential culpability. In light of such news and speculation, we think it’s important to revisit some analysis we did on the stock-market impact in May 2017—the last time cries to impeach were peaking.
In the history of the United States, only two presidents, Andrew Johnson and Bill Clinton, have been impeached by the House, and both were acquitted by the Senate. Johnson was impeached in 1868, before both the S&P 500 and the Dow Jones Industrial Average indexes existed, so we admit we don’t have much data to look at. But the more recent precedent of Clinton’s impeachment gives us some anecdotal information.
On December 19, 1998, the House voted to impeach President Bill Clinton. The S&P 500 rallied 5.5% in the following month and 9.7% over the next three months. On the one-year anniversary of Clinton’s impeachment (during which time he was acquitted by the Senate), stocks returned 21.1%. While gut reaction might tell you that dysfunction created by an impeachment and trial should lead to a market selloff, the opposite occurred during the one recent set of data we have to look at.
Of course, no discussion of impeachments is complete without reviewing President Richard Nixon’s tenure. Technically, he wasn’t impeached—he resigned 10 days after the House Judiciary Committee issued three articles of impeachment and before the House had the chance to vote on initiating proceedings. But we can look at how the market performed after the Judiciary Committee made its recommendation in July 1974. While the market dropped 8.6% in the ensuing month and was off 5.6% three months later, it recovered all those losses and then some, ending 17.3% higher a year later.
Whether or not we’re facing impeachment hearings any time soon remains to be seen. But the scant historical data leads us to believe that such events teach us far more about civics than the markets.
Looking Ahead: Consumer Data, Revised GDP Growth and Inflation
Next week, in the run-up to the three-day Labor Day weekend, we’ll get reports on pending home sales, consumer confidence and consumer sentiment, personal income, spending and savings (the heartbeat of the U.S. consumer), as well as a look at a revision of second-quarter GDP growth and inflation gauges.
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Please note: This update was prepared on Friday, August 10, 2018, prior to the market’s close.
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