(Bloomberg News) The money managers who picked the global stock market bottom say now is no time to sell as the biggest equity rally since 1955 starts its third year.
Laszlo Birinyi, who told clients to buy as the Standard & Poor's 500 Index fell to a 12-year low of 676.53 on March 9, 2009, says gains that added about $28 trillion to global share values will outlast previous increases as investors who missed the first phase play catch-up. Valuations are still below historical averages, said Barton Biggs, the hedge-fund manager who purchased stocks before the S&P 500's 95% advance through yesterday.
Rallies in equities, corporate debt and commodities illustrate how the more than $12 trillion pumped into the financial system by governments and central banks is spurring a recovery from the worst global recession since the 1930s. While bears say prices will fall once stimulus ends, billionaire Kenneth Fisher and Byron Wien of Blackstone Group LP are betting on stocks whose profits are most tied to economic growth.
"These kinds of strong beginnings lead to long and durable bull markets," Birinyi, who founded Westport, Conn.-based research and money management firm Birinyi Associates Inc. in 1989 after a decade on the trading desk at Salomon Brothers, said in a March 7 phone interview. "While there will be corrections and while there will be pauses, we're still of the view that this is a bull market that we expect to go on for several years."
Previous Bull Markets
Even after almost doubling in 24 months, the S&P 500's two-year return is 36 percentage points below the average bull-market gain of 131% since 1962, according to data compiled by Bloomberg and Birinyi Associates. The 730-day rally without a decline of 20% or more compares with an average duration of 1,407 days, the data show.
The S&P 500 fell 0.4% to 1,316.06 at 10 a.m. in New York, while the Dow Jones Industrial Average declined 0.3% to 12,178.24.
Genworth Financial Inc., the Richmond, Virginia-based mortgage guarantor and life insurer, increased the most in the S&P 500 since the market's bottom, climbing more than 14-fold. General Growth Properties Inc., the Chicago-based mall owner, led the MSCI All-Country World Index of 45 developed and emerging markets, rising 5,174%, data compiled by Bloomberg show.
The two-year advance is the biggest for the S&P 500 since the rally following the end of the Korean War and the election of President Dwight D. Eisenhower, according to data compiled by Bloomberg and S&P. The index has risen in 18 of 24 months, data compiled by Bloomberg show.
Five straight quarters of U.S. profit growth and the biggest yearly increase since 1988 have held down valuations, data compiled by Bloomberg show. The U.S. benchmark index is trading at 15.5 times reported earnings, compared with the average ratio of 19.7 at bull-market peaks. The S&P 500's earnings yield, or annual income divided by the index price, is 2.96 percentage points higher than the payout on 10-year Treasuries, the widest gap at the two-year point of any bull market since 1962, the data show.
"I don't think valuations are stretched," Biggs, who oversees $1.4 billion as managing partner of New York-based Traxis Partners LP, said in a March 7 phone interview. "The next move in the S&P 500 is more likely to be up than down, and that move could be 10% to 15%."
When Biggs bought shares in March 2009, the purchases were a contrarian bet driven by what he said was the highest level of bearish sentiment ever. Lehman Brothers Holdings Inc. had collapsed six months earlier, Warren Buffett, the chairman of Berkshire Hathaway Inc., said the economy was in "shambles" and New York University's Nouriel Roubini, who foresaw the crisis, said the S&P 500 may fall to 600.
Stocks surged as record-low Federal Reserve interest rates, along with a $787 billion stimulus bill signed into law by U.S. President Barack Obama and his administration's plan to rid banks of toxic assets, boosted investor confidence. Buying shares is a "potentially good deal" for long-term investors, Obama said six days before the slump ended.
Now Biggs is counting on economic and profit growth to spur gains. Citigroup Inc.'s Economic Surprise Index for the U.S., a gauge of how much reports are exceeding the median economist estimates in Bloomberg News surveys, surged to a record last week as manufacturing growth topped forecasts and the jobless rate unexpectedly fell to an almost two-year low.
S&P 500 companies will boost earnings by 17% during the next 12 months to a record $99.57 a share, according to analyst estimates compiled by Bloomberg. Profits in the MSCI All-Country Index may climb 20%, analyst forecasts show.
"We're in a major expansion globally," according to Fisher, who oversees $44 billion at Woodside, California-based Fisher Investments Inc. and said in September 2009 that the rally in equities was too big to reverse. "Corporate earnings are great."