The longest bull then and now: How financial conditions have changed

  • Financial conditions, including crude prices, short-term rates and the strength of the U.S. dollar have changed dramatically ever since the start of the bull market.
  • The bull market on Wednesday became the longest on record, turning 3,453 days old.
  • But the benchmark interest rate used to determine mortgage rates is virtually unchanged from where it was on March 9, 2009, when the bull market began.

 

 | Reuters

A lot of financial conditions have changed since the longest bull market on record began, but the benchmark interest rate used to determine mortgage rates is virtually unchanged.

The U.S. 10-year Treasury note yield closed at 2.844 percent on Tuesday. On March 9, 2009, the day the stock bull market began, the 10-year closed at 2.864 percent.

But while the benchmark rate is at about the same level it was following the financial crisis, monetary policy conditions are drastically different, said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

A decade ago, the Fed slashed its overnight interest rate to zero during the aftermath of the financial crisis. The central bank also began buying sovereign government bonds and mortgages, a practice called quantitative easing designed to help the financial system by flooding it with money.

“The [Federal Reserve] took its balance sheet from $800 billion to $4.1 trillion in that time,” Boockvar said. “You hate to say that ‘this time is different,’ but the amount of central bank intervention we’ve had is what makes it different.”

What happened since then is the current bull market for stocks, which is the longest on record. It turned 3,453 days old on Wednesday, finally surpassing the length of the previous record run from October 1990 to March 2000. Since March 2009, the S&P 500 has skyrocketed more than 300 percent.

But while the benchmark 10-year rate is at the same level it was at the start of the bull market, other rates and assets are well off their March 9, 2009, levels.

The short-term two-year yield has risen to 2.608 percent from 0.963 percent in March 2009. The two-year yield is one of the most affected by changes in Fed policy. Since 2015, the Fed has raised rates five times, including twice this year, as part of its plan to return conditions to normal after the decade of easy money.

The dollar index, which tracks the dollar’s performance against a basket of currencies, traded at 95.25 on Tuesday, up 7 percent from 89.01, where it traded when the bull market started. The currency is also heavily influenced by monetary-policy shifts. Rising rates tend to push the greenback up.

“You do not want to give Jeff Bezos a seven-year head start.”

Crude oil prices are up nearly 40 percent over the past nine and a half years but have taken investors on a wild ride in that time. After trading in a range between $80 a barrel and $110 a barrel between 2011 and 2014, West Texas Intermediate futures plummeted to around $26 in February 2016. Crude has surged more than 150 percent since then but has failed to crack above $80 per barrel.

Gold prices are up 30 percent since March 9, 2009, but are well off the highs reached in the interim. Ever since settling at $1,891.90 per ounce on Aug. 22, 2011, gold futures have fallen 36 percent. Gold settled on Tuesday at $1,200.