S&P 500 Signals Bull Market Resurgence

The S&P 500 experienced a significant increase of over 20% from its October lows on Thursday, indicating the beginning of a new bull market.

This recent upward movement, lasting for 248 trading days, marked the longest bear market for the S&P since 1948. Despite facing challenges such as an aggressive Federal Reserve rate hike campaign, regional banking turmoil, and ongoing recession concerns that have not fully materialized, the benchmark index showed resilience and steadily rose.

Research conducted by Bank of America reveals that the S&P 500 has historically risen 92% of the time in the 12 months following the start of a bull market. This outperforms the average of 75% over any 12-month period dating back to the 1950s.

Market analysts, including Savita Subramanian and the equity strategy team at Bank of America Global Research, believe that the return to bull territory could reignite investor enthusiasm for equities. They suggest that if investors face challenges in bonds, such as lower returns or negative opportunity costs due to rising real rates, they may be incentivized to return to equities, particularly those that benefit from increasing real rates, known as cyclicals.

Historical patterns show that the path of stocks after entering a bull market is not always linear. Ryan Detrick, Chief Market Strategist at Carson Group, tracked 13 instances since 1956 when stocks rebounded by 20% from a 52-week low.

During the initial three months, stocks often experienced volatility, with the benchmark index even declining by an average of 0.5% in the first month after entering bull market territory. However, in the long run, the performance has generally been positive.

Detrick’s research shows that after rallying 20% from market lows, the S&P 500 averaged a 10% return over the following six months and 17.7% over the next 12 months.

While stocks may have challenges, the market expects the Federal Reserve to temporarily pause its interest rate hiking process. However, this development may not necessarily benefit stocks, as economists believe the pause is a result of the “lagging impact” of fiscal policy. Consequently, an economic growth slowdown is anticipated, which could ease inflation but potentially impact earnings growth. Morgan Stanley has even forecasted a 16% decline in corporate profits by the end of the year under this scenario.

Nevertheless, historical data suggests that stocks tend to perform well in the long run. Sentiment, positioning, fundamentals, and supply/demand dynamics support the notion that being underinvested in stocks and cyclicals could pose a key risk, with the more likely direction of surprise being positive, as Subramanian and the Bank of America team highlighted.

Source: Yahoo!Finance

Source