The S&P 500 closed more than 20% higher from its October lows on Thursday, signaling the start of a new bull market.
At 248 trading days, the recent return to a bull market was the longest bear run for the S&P since 1948. The benchmark’s resilient rise came amid the longest rate hike campaign. aggressive action by the Federal Reserve over four decades, regional banking turmoil and ongoing recession fears that have not fully materialized.
Bank of America research indicates that the S&P 500 rises 92% of the time in the 12 months following the start of a bull market, compared to the historical average of 75% in any 12-month period dating back to the 1950s.
“We’re back in bullish territory, which could be part of what it takes to get investors back on track for equities,” Savita Subramanian and the Bank of America Global Research equity strategy team wrote on Friday. in a note. “If investors are feeling the pain with bonds, via lower yields or negative opportunity costs – likely if real rates rise from here – they should be encouraged to return to equities, especially stocks that are benefiting rise in real (cyclical) rates.”
History shows that the average progression of stocks might not be linear. Carson Group chief market strategist Ryan Detrick followed 13 times as stocks rebounded 20% on a 52-week low since 1956. In the first three months stocks were generally choppy, the index of benchmark actually falling 0.5% on average in the first month after reaching bull market territory.
But in the long run, things have been too positive. After rallying 20% from market lows, the S&P 500 has averaged a return of 10% over the next six months and 17.7% over the next 12 months, according to research by Detrick.
“As we’ve said all year, we continue to expect equities to do well this year and the upward movement is firmly in place and studies like this hardly change our view.” , said Detrick.
A recent chart from Bespoke explains how stocks generally behave in the months following their entry into a bull market.
The upward trajectory for equities still remains rocky. Next Wednesday, markets expect the Federal Reserve to suspend its process of raising interest rates. That’s not necessarily a tailwind for equities, however, as economists believe the Federal Reserve’s pause would come pending the “delayed impact” of its fiscal policy.
In this case, a slowdown in economic growth would likely occur, allowing inflation to subside, but also potentially allowing earnings growth. Morgan Stanley recently underscored this scenario by calling for a 16% drop in corporate profits by the end of the year.
But in the long run, as always, the story will stay with equities.
“Sentiment, positioning, fundamentals and supply/demand support that underinvestment in equities and cyclicals remains the main risk today – the most likely direction of surprise is still positive “, wrote Subramanian and BofA.
Josh is a reporter for Yahoo Finance.
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