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The market's record bull run relies on rocket fuel

Illustration: Lazaro Gamio/Axios

Unless it's improbably interrupted, the bull run on Wall Street will become the longest on record this week, and — if most analysts are right — the party will continue for some time yet.

The big picture: If there is something to worry about, it's that the run is not self-propelled. Instead, it relies largely on the rocket fuel of unusually low interest rates and, most recently, the corporate tax bonanza. Crucially, it also seems to have done little to salve the profound popular mistrust in institutions and the leadership class, who put in motion the series of calamities that continue to hound the U.S. and the world — the Iraq war, the financial crash, and the everyone-for-themselves economy.

  • The background: The run began March 9, 2009, amid the edgy fright and gloom of a financial crash that had beaten the confidence out of nearly everyone. On Wednesday, it will be 9 years, 5 months and 13 days old, passing the iconic tech-and-dotcom boom of the 1990s.

As the boom has gone on and on, animal spirits — business, market and consumer confidence — have helped keep it aloft. One marker: Earlier this month, investors drove Apple to a record market cap of $1 trillion.

  • But the spirits are more subdued than the feverish 1990s. This bull run had returned about 320% by the close of trading Friday; but that compared with 417% for the dotcom boom — making it almost 25% smaller at the same point in its life, according to LPL Financial.
  • And this boom isn't exceptionally long if you consider history and the chasm left behind by the financial crash. About eight years of the run probably went into just digging out of that hole, says Kenneth Rogoff, a Harvard professor and co-author of This Time is Different, a history of market manias.

Rogoff is among those who point out the role of low interest rates in fanning stock prices — highlighting that the Fed is now slowly raising rates. "The extremely low level of global real interest rates, which are near historical lows, has to be considered a major factor underlying ALL asset prices, from equities to housing to art," Rogoff tells Axios in an email exchange.

  • Why it matters: Just as the booms of recent decades leaned on bubbles in real estate, Silicon Valley startups, and exotic Wall Street financial instruments, this time it's historically low interest rates.
  • "We don't know how to grow the economy and create fresh incomes apart from leveraged asset price appreciation, it seems," Jonathan Levy, an economist at the University of Chicago, tells Axios.
  • Most economists and Wall Street analysts see more forward momentum in the forces that have propelled the market this far — steady corporate profit, economic growth, and investor confidence. Rogoff says that as long as the Fed raises interest rates only gradually, "they won't hit the stock market all that hard."

The other side: Some economists urge caution, seeing storm clouds in Chinese debt, the collapse of the Turkish lira, and a bearish downturn in developing markets, places that have triggered financial contagion in the past.

  • In 1997, the collapse of the Thai baht ignited a global financial crisis, including stocks and commodities.
  • Investor cash has been flowing out of tech stocks and U.S. equities as a whole, and toward slow, steady companies such as utilities, suggesting a flight to safety, writes Reuters' Helen Reed.
  • "It feels like an emerging markets crisis is what will end the bull market," Levy said. "Obviously, Trump adds a dose of radical uncertainty into the mix." 

Go deeper: Some market watchers quibble with the bull run record, per MarketWatch's William Watts.

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