Can bulls fly? Stock exchanges are nearing record territory.

Bulls cannot fly. Every child knows that. Or can they? The stock market rally took off in 2009. Since then, it has been soaring higher and higher – but for how much longer? That question is being asked by both investors and the heads of the world's largest central banks.

Longest stock rally in history

There are good reasons why the current rally could become the longest in history. Depending on your calculations, that would probably be the case next summer. Can any conclusions be drawn by comparing this bull market to the one that lasted from 1987 until 2000? To do so would be misleading.

That is because bull markets don't die of old age. Most of them are killed by a recession or inflation. Even the bull market previously holding the record as the oldest died at the turn of the millennium from all the exuberance of the dot-com bubble and a recession. Today's situation has little in common with the one back then.


The bull market is climbing sharply

Dark areas = bull markets. Light areas = bear markets (fall of at least 20 percent). Business cycles: highs (H) and lows (T) according to National Bureau of Economic Research.
Sources:, Standard & Poor’s

Past performance and financial market scenarios are not reliable indicators of future results.

Stock market investors feeling nervous

Investors are feeling unusually nervous right now, even if the evidence supports neither a recession nor a shift in inflation. The current sentiment is quite easy to read based on the spike in Credit Suisse's global risk aversion index.


Investors are extremely risk-averse at present

Source: Credit Suisse

What's driving the stock rally

Stock rallies typically draw their energy from two sources. First, there is earnings growth. Second, they are fed by a proverbial "wall of worry." That is a metaphor for capital that is looking for investments but holding back out of concern. This reservation creates liquidity and leads to higher valuations.

Some background: Since 2009, corporate profits on the S&P 500 have grown by 370 percent, by 26 percent this year alone. Even on the SMI, they have more than doubled. It's no wonder that most equity markets have more than doubled since then as well. And, even though the earnings momentum remains intact, investors are not responding nearly as exuberantly as they did in 2000.

Global inflation is also being kept low thanks to the pressure of competition. It hides mostly in producer prices and rarely gets passed on to consumers. Our monetary policy has been a strong anchor of stability for years now. Growth is being supported by fiscal policy, especially in the US and China. The technology cycle is driving considerable corporate spending on a global scale. We are experiencing a robust, positive economic cycle.

Some statistics on the current stock market rally

High corporate revenue in times of a bull market

Over the past quarter, corporate revenues worldwide have reached new highs. It is hardly surprising to see many stock markets overcome their weakness of the early summer.


Revenues per share have never been higher

Source:, Standard & Poor’s

Corporate profits at record levels

What helps your revenue also helps your profits. The tax reform in the US has also been a contributing factor. However, even companies in Switzerland, the EU, and Asia are declaring record profits.


Corporate profits are higher than ever

Source: Thomson Reuters I/B/E/S.

Emerging markets are dragging the bull market down from its soaring heights

What would it mean if the record-breaking profit growth slowed down? In principle, that would be a good thing because bull markets work much like a marathon. A slow pace is often more sustainable. Moderate profit growth would be reflected in modest price gains. That is essentially the scenario that can also be expected in the long-term capital market assumptions.

The situation in the emerging markets is different. Although corporate profits in emerging markets are growing strongly, their companies are healthy, their balances of payments are positive, and the majority of them have a low level of indebtedness, trade policy tensions and the problems in Argentina and Turkey have led to general outflows of capital.


Emerging markets perform poorly on the stock exchange

Source: Thomson Reuters

The situation now resembles the emerging market crisis in the late 1990s. In 1998, Russia stopped servicing its debt. The bankruptcy of hedge fund LTCM sent shock waves around the world. In Indonesia, President Suharto had to step down after 32 years in office, and South Korea, Malaysia, and Thailand suffered severe recessions. The current flight of capital has similar dimensions to the one back then. Today, however, the emerging markets are in much better shape. Let us not forget that the values of most stock exchanges in emerging markets at the time had doubled again after only 18 months.