There was a further shift in investor sentiment last week. As the S&P500 hit a new record high, ending the shortest bear market in history (less than five weeks), it seems as though the mood has gone from ‘genuinely surprised ’to ‘genuinely bullish’ with a belief that the rally is sustainable and represents a new bull market rather than just a bear market bounce.

According to growing numbers of money managers, we could even be at the start of a new economic cycle.If so, this would be the first time in history that we started the economic upturn with stocks already at record highs. Traditionally, the combination of a recession and a stock market crash had the effect of resetting both behaviour and pricing. Many weaker companies would go out of business, share prices would fall over a sustained period of time until amateurs were flushed out of the market and a fear for the risks inherent in financial markets would be re-established.

Normally, you would expect a period of economic hardship that would be reflected in bargain share prices and great opportunities for value investors. This time is very different. In February we saw stocks drop very quickly and hard, but only for a short time. The subsequent rebound then gave life to even more of the red flags you see at the top of bull markets, such as an explosion of new day traders, massive spikes in the price of popular stocks, increasingly absurd explanations for why stocks are not expensive and a high concentration of investors in a handful of popular companies.

Fiscal and monetary intervention by governments and central banks has turbo-charged the stock market rebound, the bear market has been cancelled and now we are finding out just how high this bull market can go as American stocks push into uncharted territory. Apple helps illustrate how the rally is a reflection of style over substance. In March the company’s share price dropped such that its valuation fell to a mere $1 trillion. Five months later and the company is now worth $2 trillion, a stunning reversal in such a short period of time which highlights how wrong or right the market can be about a company’s true worth.

To put this climb into context: there are only 5 companies on the US stock market that are worth more than $1 trillion. It took 38 years for Apple to grow to $1 trillion but only two more years for it to reach the $2 trillion mark.You might think that Apple is growing so quickly that it justifies this spectacular valuation but in fact, in the two years it has taken Apple to go from first hitting the $1 trillion mark to the $2 trillion mark, earnings per share (EPS) are forecast to have grown by just 5%.

The consensus EPS forecast for the full financial year ending in September 2020 is for earnings of $12.92 whereas the company earned $12.21 per share in the 2018 financial year. And most, if not all, of this small rise is down to the massive amount of shares the company has bought back, which boosts the per share figure.

Overall, whilst investors have added $1 trillion to its value, earnings growth has been pedestrian at best and non-existent at worst. Apple is the world’s most valuable company. It mostly makes expensive leisure products that are highly discretionary, the sort that would traditionally see demand wilt as consumers become hard up or more fearful about losing their jobs.

I don’t want to pick on Apple in particular. The business has performed relatively well during a difficult period, but it does help highlight how this rally has a tenuous link with the economy. The vast majority of companies are not even doing as well as Apple. Corporate earnings for businesses in the S&P500 declined 22% in the second quarter and, whilst we can expect a rebound that reflects the end of lockdown, future growth could be weak if the virus is not brought under control before flu season arrives in winter or if unemployment remains high.

As I mentioned recently, signs you would usually associate with a bubble are in evidence, but it is very hard to see what would puncture the current euphoria and stop American markets from rising. It is not difficult to make a list of potential headwinds to the rally (trade war, the US election, the virus, a default wave, to name just a few) but, if recent history is anything to go by, they will come and go without much consequence, perhaps presenting another opportunity to ‘buy the dip’.

On the other hand, if we are comparing this rally to the dotcom bubble, it is worth remembering what ended the rally in 2000: nothing. There was no single event or turning point that caused the end of the bull market. One day, sentiment simply changed and buying turned into selling that continued for over two years. Sometimes bull markets do die of old age