A decade on from the 2009 low - where now for stock markets?
From its peak in October 2007, the S&P 500 plummeted 57% over the course of the following 17 months during the global financial crisis. However, since the market low recorded a decade ago on 9 March 2009, the S&P 500 and most global equity markets have delivered strong returns.
On the tenth anniversary of the 2009 low, investors discuss the direction of markets from here:
Henning Meyer, deputy manager of the GlobalSar Strategic and Dynamic funds at Sarasin & Partners
When the S&P 500 reached a level of 675 on 9 March 2009, it seemed as if the equity markets had capitulated. What investors did not know was central banks around the globe were to launch the most aggressive easing programme since WWII, setting the scene for what ten years later would become the longest bull run in history.
Understandably, references to the current ‘late cycle environment' have increased considerably in recent months. However, there are two things investors should bear in mind. Firstly, while the current bull market is certainly the longest in history, it lags previous bull runs in terms of gains. During the rally from December 1987, ending with the dotcom bubble, the S&P500 rose almost seven-fold.
Secondly, and more importantly, bull markets do not die of old age alone. In essence, the equity market is a discounting machine, reflecting expectations of future earnings growth and, in turn, expectations of future economic growth.
While growth expectations have been lowered lately, consensus does not expect an imminent recession, and neither do we. However, investors must be aware that the days of ‘easy money' likely ended in 2018 and it is reasonable to expect volatility in markets will continue. The stimulus of US tax cuts and public spending is evaporating, and it is too early to determine whether trade tensions between China and the US will intensify or ease.
Ben Griffiths, portfolio manager of the T. Rowe Price European Smaller Companies Equity Fund
There has been a strong recovery from the trough ten years ago, but a large part of this was just recovering the ground lost as we went into the crisis.
What is really striking when I look at our current portfolio is how many exciting companies were not on public markets a decade ago, and some companies did not even exist. This reflects the profound innovation that has occurred, especially within technology. At the same time, many more established companies have matured, especially those that have been able to adapt their business models to the online world. Those demonstrating durable, structural growth have been strongly rewarded.
Smaller companies are harnessing new technology and digitising their businesses to drive productivity and innovation. For example, banking has completely changed in 15 years. There is no need to call the bank to make a transaction, people can just smartphone instead.
This is just the tip of the iceberg. It feels to me we are only just on the cusp of starting to benefit from the spread of digitisation, which could revolutionise supply chains and make them more efficient.
Vince Childers, manager of the Cohen & Steers Diversified Real Assets Fund
A decade on from the US equity market low and the mindset of most investors remains framed by the financial crisis and the following disinflationary period. While this remains at the forefront of thinking, it is important for investors to not dismiss the lessons of pre-crisis history, as markets may display different dynamics in the future.
For example, one environment we have not experienced for a while is a period where inflation surprisingly accelerates to the upside. In this scenario, stock and bond markets both typically struggle, meaning investors lose the portfolio diversification benefits.
In our view, many investors are still complacent in relation to inflation risks. Combine this with historically-elevated equity valuations and still-low bond yields, we could be witnessing potentially lethal portfolio positioning. If we do happen to witness a period of inflation surprise, this should drive renewed appetite for real assets - which tend to perform well and provide much-needed diversification during such a period.
In fact, even though individuals remain content riding the stock juggernaut, forward-looking institutional investors are continuing to increase allocations to real assets. Real assets can also offer considerable value - due to the fact many of these assets have only partially participated in the risk-on rally experienced over the past decade.
Mark Appleton, global head of multi-asset strategy at Ashburton Investments
It can probably safely be said the boost to equity values from low interest rates is unlikely to be repeated. Central bank policy rates are already relatively low and while they are unlikely to rise significantly, given a benign inflation outlook, we do not anticipate they have much scope to fall. This is true unless there is an impending recession - which is not our base case for at least the next two years.
Assuming interest rates stay around current levels, any gains in market valuations will have to primarily be supported by earnings and dividend growth. As a rule of thumb, corporate earnings will correlate to potential nominal GDP growth. This growth, in addition to prevailing dividend yields, suggests long-term average returns of about 7% from global equities.
Of course, this is a broad-brush approach and we anticipate many swings around these numbers over the next decade. The need for vigilance will be as important as ever.
