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Will The S&P 500 Bull Run Ever End?

Market

The broad-market benchmark S&P 500 index has just crossed a major milestone by becoming the longest-ever bull run in history after rallying 0.6 percent to touch an all-time high of 2,873.23 in intraday trading on Tuesday.  

It managed to surpass the previous all-time high of 2,872.87 on January 26th, and the rally pushed the index’s bull-market run to 3,452 days—its biggest run ever.

Helping the rally were trade-sensitive stocks, which climbed for the fourth consecutive session as investors remained optimistic of a thawing of trade tensions between the U.S. and China.

Consumer goods stocks also performed well, after TJX Companies Inc. (NYSE:TJX) and Toll Brothers Inc. (NYSE: TOL) stocks jumped five percent and 14 percent, respectively, following strong Q2 2018 earnings reports.

The S&P 500 has racked up gains of 7.0 percent vs. 3.9 percent by the Dow Jones in the year-to-date. The nearly 10-year bull run has been truly impressive, with the S&P 500 and the Dow Jones increasing 289 percent and 264 percent in the post-crisis era.

Bull Run Could Continue

The markets though have taken a hiatus after new tariffs came into effect after both sides of the U.S.-China trade war announced yet a new round of tariffs even as talks kicked off. The U.S. brought $16 billion worth of Chinese imports under a 25-percent tariff in the second phase of Trump’s tariffs, while Beijing returned fire by announcing tariffs on a similar amount of U.S. imports. Related: Markets Unchanged On Potential Trump Impeachment

The S&P 500 has dropped 0.12 percent, while the Dow Jones has lost 0.22 percent on Thursday intraday after a guilty plea by president Trump’s personal lawyer Michael Cohen as well as the conviction of his former campaign chief Paul Manafort directly implicated the president and have substantially increased his odds of impeachment.

Nevertheless, the drop has been much smaller than earlier feared.

The stock market has been running on steroids in the Trump era, racking up gains on a 20-percent annualized clip vs. 9.4-percent historical average since 1927 thanks to Trump’s generous $1.5 trillion tax package.

The tax cuts have  been helping companies realize record earnings, with the S&P 500 reporting blended earnings growth of 24.6 percent during the last quarter, second-best in history. Further, record numbers of companies have been beating earnings estimates, with 73 percent exceeding analysts’ consensus compared to the long-term average of 60 percent.

(Click to enlarge)

Source: Thompson Reuters

Wall Street is equally upbeat about the future of the market.

The bottom-up analyst target price for the S&P 500 over the next 12 months is 3144.93, good for 10-percent upside from Thursday’s closing price of 2859.69. Further, out of the 10,879 analyst ratings on S&P 500 stocks, 53 percent are ‘Buy’; 41.6 percent are ‘Hold’ and only 5.4 percent are ‘Sell’.

Related: U.S. Shuts Down Foreign Software Testing

It’s hardly surprising that investors have continued to ignore growing geo-political risks. Companies have been returning a lot of those fat earnings to shareholders in the form of copious share buybacks and dividends. Share buybacks during the current year remain on track to eclipse $1 trillion, a record by the S&P 500.

Meanwhile, more companies have been growing or initiating dividends, with average dividend growth of 13.85 percent recorded so far, the fastest pace since 2014.

Part of the shareholder reward packages is self-serving though. With bond yields rising, company boards are keen to keep their stocks looking attractive to investors.

With Taxphoria expected to continue growing earnings for at least a couple more years, don’t bet against the U.S. stock market.

By Alex Kimani for Safehaven.com

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