Second-Longest Bull Market Ever

Second-Longest Bull Market Ever, Yet Investors Remain Skittish by Gary D. Halbert

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert

April 26, 2016

IN THIS ISSUE:

1. 45% of Americans Now Pay No Federal Income Taxes

2. US Stock Market on Track For Second-Longest Bull Run

3. Second-Longest Bull Market Ever, Investors Continue to Unload Stocks

4. Millions of Americans Have Fallen Out of Love With Stocks

Second-Longest Bull Market Ever – Overview

If the US stock markets don’t collapse between now and Friday, this will be the second-longest bull market on record. Really. The current bull market began in March 2009 and will have lasted for 2,608 days (7.2 years) on Friday. If so, it will top the former second-longest bull market which ran from 1949 to 1956 (2,607 days). That’s quite impressive.

Yet despite the stock market’s very impressive returns since the end of the Great Recession, American investors have unloaded stocks at a near-record pace. According to a new Gallup poll, only just over half of American households say they currently have any money invested in the stock market, matching the lowest ownership rate in the poll’s 19-year history.

The latest Gallup poll found that only 52% of American households have any money invested in stocks (individual stocks, equity mutual funds, ETFs, etc.), down from a high of 65% in late 2007. Unfortunately, young people are the ones with the lowest investment in stocks. There’s a lot to talk about on this subject.

Yet before we get to that discussion, I want to bring to your attention a new report which found that almost half (45%) of Americans now pay zero in federal income taxes, according to the Tax Policy Center. The reasons may surprise you. Let’s get started.

45% of Americans Pay No Federal Income Taxes

Many Americans don’t have to worry about giving Uncle Sam part of their hard-earned cash for their income taxes this year. An estimated 45.3% of American households, or roughly 77.5 million, will have paid no federal individual income tax, according to data for the 2015 tax year from the Tax Policy Center, a nonpartisan Washington-based research group.

Roughly half of those pay no federal income tax because they have no taxable income, and the other roughly half get enough tax breaks to erase their tax liability, according to the Tax Policy Center.

Second-Longest Bull Market Ever
Second-Longest Bull Market Ever

While the mainstream media would have us believe that “rich people” pay little in the way of income taxes, this is simply not true. The top 1% of taxpayers pay a higher effective income-tax rate than any other group – around 23% on average, according to a report released by the Tax Policy Center in 2014 – nearly seven times higher than those in the bottom 50%.

On average, those in the bottom 40% of the income spectrum end up getting money from the government in the way of subsidies. Meanwhile, the richest 20% of Americans, by far, pay the most in income taxes, forking over nearly 87% of all the federal individual income tax collected by Uncle Sam.

The top 1% of American income earners is defined as those who earn over $400,000 a year. This group paid apprx. 45.7% of all federal income taxes collected for 2014 according to the Tax Policy Center. That’s almost half! Among the top 0.1% – just 115,000 households – paid more than 20% of all federal income tax collected that year.

When it comes to ALL federal taxes – individual income, payroll, excise, corporate income and estate taxes – the distributions of who pays what is more spread out. This is partially because nearly everyone pays excise taxes, which includes taxes on gasoline, alcohol and cigarettes.

Second-Longest Bull Market Ever
Second-Longest Bull Market Ever

I could go on and on with this discussion, especially in light of the liberals’ obsession with “income inequality” and raising taxes on the “rich,” but I will leave it there for today, so we can get on to our main topic.

US Stock Market on Track For Second-Longest Bull Run

Assuming the US stock markets don’t collapse in the next three trading days, the current bull market will become the second-longest in history on Friday. From the March 2009 low, the S&P 500 will have risen overall for 2,608 days by the close on Friday.

The chart below shows the S&P 500 through last Friday when the bull run was at 2,603 days. If the current uptrending market makes it through this Friday, that will surpass the former second-longest bull run in the post-WWII era, which was from June 1949 to August 1956, or 2,607 days (see below).

Second-Longest Bull Market Ever, Yet Investors Remain Skittish

The longest running bull market was from 1987 to 2000, when the dot-com bubble burst. That bull market lasted 4,494 days. For the current bull market to last that long, we will have to avoid a bear market until June 2021. I don’t know about you, but I don’t think we’ll make it!

The longevity of the current bull run is surprising to many, especially as questions intensify about the health of corporate profits so far this year. Corporate profits for S&P 500 companies are expected to fall 7% on average in 2016, according to a recent survey by Thomsom Reuters.

In Europe the earnings decline so far this year is predicted to have been greater, with 2016 corporate profits expected to drop 19% from the year before, according to Thomson Reuters. Excluding energy companies, which are hurting the most, a 12% decline is forecast for Europe.

Yet despite the decline in corporate profits so far this year, the US stock markets are currently near new all-time highs and imply a future of rosy profits and economic optimism. Yet at the same time government bonds are priced for a world of stagnant growth, diminished opportunities and minimal inflation.

Put differently, stocks and government bonds don’t often move in parallel directions for long periods of time. Yet both stocks and bonds have been trending higher since the S&P 500 low in March 2009. Keep in mind that bond prices move higher as the yield moves lower.

Second-Longest Bull Market Ever
Second-Longest Bull Market Ever
Second-Longest Bull Market Ever
Second-Longest Bull Market Ever

Most analysts attribute the significant drop in Treasury yields in recent years to unprecedented government bond purchases by central banks around the world, also known as “Quantitative Easing” which continues in Europe, Japan and elsewhere.

In addition, the Fed’s cautious approach toward raising interest rates in the face of global economic uncertainty has led investors to seek out the safety of government bonds, pushing the yield on benchmark 10-year Treasury notes down 40 basis-points this year to 1.88%, just 50 basis-points shy of the all-time low reached in mid-2012.

Major government bond markets around the world have followed the same trajectory, with German 10-year bond yields trading at only 20 basis-points above zero and Japanese bonds with maturities up to

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