Stocks in Strongest Bull Market Since WWII

Stocks hit their highest level since this rally began 20 months ago on Fed Chairman Ben Bernanke’s extraordinary plan to purchase Treasury securities for a second time, ensuring low interest rates for the foreseeable future. What investors may not realize is that this is now the strongest bull market for equities since 1945.

Through 605 days, the S&P 500 is up more than 80 percent from its credit-crisis low reached on March 9, 2009, the biggest advance at that stage among any of the bull markets since World War II, according to Birinyi Associates. The next most powerful bull began in 1974 and was up just 61 percent through the very same time period.

“While we would advise caution on new buys at these levels, it remains clear that equity investors are in the midst of a multi-year bull market,” said Birinyi analyst Cleve Reuckert, in a note. The firm has been steadfastly bullish throughout the rally and also correctly called the summer pullback just that, a correction.

The S&P 500 is 9.5 percent higher in 2010 now, led by gains in consumer, industrial, commodity and technology shares, all beneficiaries of either low interest rates, greater liquidity or a falling US dollar . The dollar touched its lowest level this year versus a basket of other currencies.

But while this may be the best bull market since World War II, those trading this market certainly don’t feel like the ‘Greatest Generation’ of investors.

“The game is changed,” said Sal Arnuk, a partner of Themis Trading and critic of the computer trading that usually accounts for the majority of activity today. “Stock fundamentals are not as important as figuring out what the Fed will do, and front running it. The only caveat I would add, is that playing that game of chicken requires that the government will do what it says it will do.”

After the collapse of Lehman Brothers and the so-called "flash crash" this May, retail investors aren’t quite ready to take that gamble. Stock funds posted an outflow of $11.16 billion in September, while flows into bond funds increased by $26 billion, according to the latest statistics from the Investment Company Institute.

Despite the monster gains off the bottom, the S&P 500 is still just at the highest level since September 2008. It will take another bull market, or gains of more than 20 percent, to get it back near its all-time high reached in October 2007.

While this bull market certainly has its share of individual comeback stories such as Apple , Ford and Caterpillar , investors do not have the same good feeling as when the housing or technology bull markets progressed. Maybe that’s the point.

“Historical comparisons are tough to make,” said Peter Boockvar, equity strategist at Miller Tabak. “At the same time the Fed has printed more money than it’s ever had. If only this bull was based on the true economic fundamentals.”

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