By Josh Schafer
The S&P 500 ended Thursday more than 20 percent higher than the October lows.
The S&P experienced its longest bear market since 1948 when it returned to bull markets. The benchmark index has remained resilient despite the Federal Reserve’s aggressive rate-hike campaign, banking chaos in the region, and persistent recession fears which haven’t materialized.
The S&P 500 has risen 92% in the past 12 months, compared with the 75% historical average.
In a Friday note, Savita Subramanian of Bank of America Global Research and her equity strategy team wrote that we are “back in bull terrain”, which may be what is needed to revive investors. Investors should invest in equity, particularly cyclicals which will be able to benefit from higher real rates.
The S&P 500 rose more than 20 percent from its low point in October.
S&P’s recent runback to bull market, which lasted for 248 days of trading, was the longest since 1948. The benchmark index remained resilient despite the Federal Reserve’s most aggressive rate-hike campaign in 40 years, banking chaos in the region, and persistent recession fears that are yet to materialize.
Bank of America’s research indicates that S&P 500 increases 92% of time when a bullish market begins, compared with a historic average of 75%.
Savita Subramanian, a member of the Bank of America Global Research Equity Strategy team says that investors will have to return to equity if real rates rise. Investors should return to equity due to lower returns in bonds and the negative opportunity cost they will face if rates continue to rise.
Ryan Detrick is the Chief Market Strategist at Carson Group. He says that stocks have risen 20% since 1956 from a low of 52 weeks. The first three months are usually choppy, and the benchmark index falls 0.5% in average the month following the entry into bull market territory.
After a 20% rally from the market’s low, the S&P 500 returned an average of 10% over the following six months and 17.7% in the subsequent 12 months.
Detrick stated that such studies do not change his opinions. He said that he still expects stocks to perform well in the coming year.
Bespoke’s chart shows the typical performance of stocks after a market bullish entry.
Stocks’ path to higher prices remains bumpy. The Federal Reserve will likely pause the process of raising interest rates next Wednesday. This is not necessarily good news for the stock market, as economists think that the Federal Reserve will pause while it awaits fiscal policy.
In turn, the economic growth will likely slow down, which could lead to a decrease in inflation, while also putting pressure on earnings growth. Morgan Stanley predicted that corporate profits would drop by 16% at the end of this year.
The long-term history, though, will be on the side stocks.
Subramanian, BofA and other experts agree that “underinvesting in stocks or cyclicals” is still one of the biggest risks today.
