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By Josh Schafer
S&P 500 was more than 20% above its lows in October on Thursday.
S&P’s recent return to a bull-market was marked by the longest S&P bear market in history (248 days). The S&P 500 index held up despite aggressive Federal Reserve rate increases, regional bank turmoil and unrelenting recession fears.
S&P 500 gains 92% more often than 75% of the time in the first 12 months after a bull-market begins, compared to its historical average.
Savita subramanian, the head of Bank of America Global Research’s equity strategy group and their team of analysts wrote in an email on Friday: “We are back in bull country. This could help re-energize investor confidence.” In order to avoid negative returns in bonds or lower opportunity costs, which is likely to happen if rates continue to rise in the future, investors are encouraged to buy equities. This includes cyclicals.
S&P 500 ended Thursday with a gain of more than 20% over its October lows.
S&P’s run-back from a bear market to a bull one lasted 248, making it the longest market downturn since 1948. Despite the Federal Reserve’s aggressive campaign to raise rates, turmoil in regional banks, and unrelenting recession concerns that have yet to manifest, the benchmark index has risen.
Bank of America has found that S&P 500 is up 92% of the times after the beginning of a bull-market, compared to a 75% historical average.
Savita subramanian of Bank of America Global Research’s equity strategy team believes that investors might have to get back into equities once we return to bull market territory. Due to the lower returns on bonds, and potential negative opportunity costs if interest rates increase from now onwards, investors are encouraged to invest in equities.
Ryan Detrick Chief Market Strategy at Carson Group says stocks have recovered 20% after a 52 week low 13 times. Stocks are typically choppy in the initial three months of bull markets, with the benchmark stock index falling on average 0.5% the first month.
S&P500 averaged 10% returns over the six-month period, and 17.7% for the 12 month period, following a rally of 20% off the lows.
Detrick says that these studies don’t change his mind. Detrick said, “We expect the stock market to continue doing well this year. The upward trend is in place.”
Bespoke has created a chart that shows what stocks typically do after entering a bull-market.
The stock market’s path upwards remains difficult. On Wednesday next week, it is anticipated that the Federal Reserve will halt its rate hike process. But that’s not necessarily a positive for stocks. Economists say the Federal Reserve is waiting for fiscal policies to be implemented before it pauses.
The result would be a slowdown in economic growth, allowing for a reduction of inflation but also potentially affecting earnings growth. Morgan Stanley has predicted that profits for corporations will drop 16% by the year-end.
History will ultimately be on the stocks’ side.
Subramanian and BofA say that, according to “sentiment and positioning, fundamentals and supply/demand, under-investing in stocks and cycles is still the key risk of today.”
