Don't Bet on It!
This is likely a young cyclical (short-term) bull within in an aged secular (long-term) bull. The long term bull (begun around 2013) will likely reset after some sort of bubble-peak around the end of this decade. One highly regarded strategist, Tom Lee of Fundstrat, believes the S & P 500 could reach 15,000 by then (a 3-fold increase in 6 years).
The short term bull (begun October 2022) historically lasts an average of 5 years and averages 184% in appreciation. This one is about 1.75 years old and is only up about 50% from its low of 3,600 in October of 2022.
Please see excerpt from our most recent client article on the topic below:
ARE WE CLOSER TO THE BEGINNING OR THE END OF THE CURRENT BULL MARKET?
Yes.
The cyclical (short-term) recovery that began at the end of the 2022 bear market -- S & P 500 at 3,577.03 on October 12, 2022 – is now about 1.5 years old. Since 1957, these bull markets have lasted about 5 years, on average, and have returned an average of 184%. So far, at 1.5 years old and having earned 48%, this bull is likely in its early stages.
The current secular (long-term) bull market, which is the third one in history, began in 2009. These bull markets typically last about 20 years, so we likely still have 5 more years or so of strong returns before this longest and strongest of secular bulls peters out.
The renowned Dr. Ed Yardeni of Yardeni Research said this week that he expects the strong productivity from last year to continue, primarily due to tech (AI)-led productivity that will increase our standard of living. Profit margins could climb to between 13%-14% for the S & P 500 (up from its current level of about 11%). He sees an S & P 500 level of 6,500 as reasonable to expect in 2026. That would represent an 80% return from the 2022 lows.
If this bull has an average return of 184%, the S & P would exceed 10,000 – don’t bet on it, don’t bet against it…..just stay on plan knowing that the defining characteristic of the future is uncertainty and we will always be here to ensure that you continue to be able to act rationally when faced with making money decisions under uncertainty.
As far as how long the bull can last: it began in 1792 under a Buttonwood tree when the New York Stock Exchange was founded — so it will very likely outlive us and likely my grandchildren.
Don’t be fooled by the regular, unpredictable and sometimes steep — BUT HISTORICALLY ALWAYS TEMPORARY — pullbacks. They are normal. The lack of one for most of the past year was abnormal.
On average, since 1980, the S & P has experienced a 14% annual TEMPORARY pullback. As of Friday, the recent pullback from 5,639 to 5,302 (6%) was less than HALF of the average annual correction. Another 8% pullback would simply mean we will have experienced an AVERAGE year in the market.
In 2023, the S & P 500 declined TEMPORARILY from its July 31 high of 4,573 to its post-correction low of 4,104 (down 10.25%) on October 27.
Those who delayed adding funds to their plan due to extrapolating the down trend into the future missed some or all of the dramatic 33% increase over the following 9 months.
The ONLY way to capture the fullness of the long-term returns of equities is to be willing and able to capture the fullness of all of the intervening temporary declines (volatility) along the way.
Please see our September 2022 newsletter: VOLATILITY, A FEE, NOT A FINE below. It was published just before the 2022 bear market bottomed and helped to save many financial lives.
VOLATILITY – A FEE, NOT A FINE
Please enjoy the rest of the summer and avoid adopting narratives about the election, wars and general global unrest to justify feelings that “this time is different,” IT'S NEVER DIFFERENT. It is simply another one of many market corrections — the fee we pay for the superior returns of equity investments.
Moreover, the Federal Reserve will soon likely be heading into a period of interest rate reductions. If the economy slows and we experience a recession — about every 5-6 years it seems like we all forget that we have recessions about every 5-6 years — the Fed will likely accelerate the rate reductions which is almost always a propellant for equities. “Don’t fight the Fed!”
Stay tuned for our election newsletter coming in September.
Until then, wishing everyone a safe and enjoyable end-of -summer.