Mark Lister, 8 March 2016

Birthdays tend to be bittersweet for some people. They’re certainly cause for celebration, but they also bring us a year closer to whatever comes next.

This week marks the seven-year anniversary of this bull market. In March 2009, the S&P500 share market index in the US bottomed at a closing level of 677 points. This was a 56.8 per cent decline from the 2007 peak, about 18 months earlier.

Since then, the S&P500 has rallied 196 per cent, making it about three times higher at roughly 2000 points. If you include the dividends the US market is up an even more impressive 243 per cent. The NZX50 fell 44.2 per cent during the financial crisis, and has risen 165.4 per cent since the 2009 lows. Our rebound wasn’t quite as strong, but neither was our decline.

Interestingly, while US share prices are now 27.8 per cent above the 2007 peak, if we ignore dividends NZ shares are just 1.0 per cent higher.

So is this a birthday worth celebrating, or is it simply a reminder we’re one year closer to the music inevitably stopping?

The list of things to worry about has certainly grown over the past couple of years. Debt levels are no better than they were five years ago, central banks are running out of ammunition, and the world’s post-GFC growth engine (emerging markets) has become the epicentre of the current slowdown.

Credit defaults look more likely, with only the breadth of the impact seemingly up for debate, and that’s before we even get to the political worries – Brexit, how to handle European refugees and Donald Trump. Then again, it’s not all bad out there. In the US we’ve recently seen better than expected readings on the labour market, economic growth, capital spending, and even some inflation measures. Those calling for an imminent US recession have got much quieter.

Closer to home, the dairy sector is heading for another very tough season but it’s hard to get downbeat reading the earnings results from almost any of our major listed companies.

World shares haven’t been this cheap since 2014, and are trading 8.2 per cent below the 20-year average, courtesy of the 10-15 per cent correction we’ve seen over the past several months.

Rounding out the list for the sharemarket bulls is the question of what else people are going to do with their money. Interest rates are so exceptionally low, that shares still stack up as one of the most cash-generative asset classes out there. A 2.7 per cent dividend yield is still pretty good if you live in the US, even if it’s not a patch on the 5.9 per cent yield local shares are offering. However, the income you get from shares is very different to that of fixed interest. Dividend yields are only as reliable as the revenues and profits behind them, and if economic conditions change, these will too.

This article originally appeared in the New Zealand Herald on 8 March 2016.