The S&P 500 closed up more than 20% from its October lows on Thursday, marking the start of a new bull market.
At 248 trading days, the recent return to the bull market is the longest downtrend for the S&P Since 1948. The benchmark’s resilient rise came amid the Fed’s most aggressive rate hike campaign in four decades, regional banking turmoil and persistent recession fears that have not been fully realized.
Research by Bank of America indicates that the S&P 500 rose 92% in the 12 months after the onset of the bull market, compared to the historical average of 75% during any 12-month period dating back to the 1950s.
“We’re back in bullish territory, which may be part of what it takes to get investors excited about equities again,” Savita Subramanian and Bank of America Global Research’s equity strategy team wrote in a note on Friday. “If investors feel the pain in bonds, through lower returns or negative opportunity costs — more likely if real rates rise from here — they should be induced to return to equities, especially stocks that benefit from higher (cyclical) real rates.
History shows that the average upward trajectory of stocks may not be linear. Ryan Dietrick, Chief Market Strategist at The Carson Group tracked Stocks have rebounded 13 times by 20% from a 52-week low since 1956. In the early months stocks are typically volatile, with the benchmark actually down 0.5% on average in the first month when it hit bull market territory.
But in the long run, things have been very positive. After rising 20% from market lows, the S&P 500 averaged 10% return over the next six months and 17.7% over the next 12 months, according to Detrick Research.
“As we’ve said this entire year, we still expect stocks to do well this year and the upward move is in place and studies like this don’t do much to change our opinion.” Dietrick said.
The latest chart from Bespoke shows how stocks typically perform in the months after entering a bull market.
The road up for stocks is still rocky. The next Wednesday, Markets expect The Federal Reserve to stop the process of raising interest rates. This isn’t necessarily a tailwind for stocks, though economists believe the Fed’s pause will come as it waits for the “late effect” of its fiscal policy.
In this case, a slowdown in economic growth is likely, allowing inflation to ease but potentially putting pressure on earnings growth as well. Morgan Stanley recently signaled this scenario when it called for a 16% drop in corporate earnings by the end of the year.
But in the long run, as always, history will be on the side of stocks.
“Sentiment, Positions, Fundamentals, Supply/Demand Support that is not invested in stocks and cyclicals continues to be the main risk today – the trend most likely to surprise remains positive,” Subramanian and BofA write.
Josh is Yahoo Finance Correspondent.
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