The Great American Eclipse and Bull Market
Market Insights: The Great American Eclipse and Bull Market
On Monday, August 21, 2017, the Great American Eclipse will be visible from a narrow path from Oregon to South Carolina. This is the first total solar eclipse in the United States in 38 years and the first coast to coast eclipse since 1918. Adding to the excitement, this will be the first eclipse in the history of the United States, which in totality is exclusively “For USA Eyes Only.”
Since Donald Trump was elected the 45th U.S. President, the S&P 500 has gained 17.6%, the Dow +20.6% and the tech heavy NASDAQ composite +22.7%. In a bullish market, record highs are common – unlike a Made in the USA total solar eclipse. Year-to-date, the S&P 500 has closed at new highs 31 times or 21% of the trading days, the Dow 41 times or 27% and the NASDAQ 39 times or 26.5%.
Along with solid gains and new highs, stocks have had small retreats – also referred to as drawdowns. Year-to-date the largest drawdown is 2.6% from early March high to mid-April. Ahead of the election in November, the S&P 500 had a 4.3% drawdown from August high (shown below):
Earnings in Driver Seat
Corporate earnings are a major factor fueling this latest advance of the 8-year-old bull market. After an earnings timeout when S&P 500 earnings experienced essentially no earnings growth in 2015 and 2016, growth forecasts for 2017 and 2018 are double-digit according to Thomson Reuters I/B/E/S (below). The squiggly colored lines are the lives of annual forecasts. In this subset (2011-2018) as in most years, forecasts are initially overly optimistic and fade over time as reality sets in. As we close in on the 2017 finish line, forecasts are holding up better than most years and the stock market has voted its approval.
Energy Sector – Star to Goat to Contributor
Breaking earnings down by sector contribution, the chart below shows the eleven sectors of the S&P 500 over the past four years. One can see clearly how the energy sector forward earnings (the green line) were decimated from the end of 2014 to mid-2016 from $50 to $10. Though still far from highs, the energy sector earnings are off the floor and are adding to the growth in overall S&P 500 earnings.
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