Can The Bulls Keep Running?
The Clark Group Asset Management
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The bull market has officially turned two!
Markets have also had an impressive run since the bottom of the bear market in October 2022.
Since October 12, 2022, the S&P 500 has gained over 60%.
Can the bulls keep running?
Given the strong performance in 2023 and the strong 2024 we're having, it's reasonable to worry that markets might retreat.
You can see in the chart below that consecutive strong years have happened before.
That said, past performance doesn't guarantee that optimists will continue to drive markets.
In fact, a pullback ahead wouldn't be surprising, especially with the presidential election approaching. Regardless, your decisions around your portfolio?should not?be impacted by near-term market volatility.
However, there's reason to hope for continued optimism.
The bull run we've experienced this year has a strong grounding in economic factors.
Factor #1: A growing economy generally boosts markets.
While markets are often impacted by short-term trends and investor psychology, stocks generally follow the overall health of the economy.
The latest data shows that economists are upbeat about where economic growth is headed. Unemployment is near 4%, inflation is closer to the Fed's target of 2.00%, and GDP is continuing to grow. The economic indicators are trending in the right direction...
Since the stock market is forward-looking, that's a positive for the bulls.
Factor #2: The Federal Reserve's interest rate policy is loosening.
A big part of the market story this year is the hope that the Fed will be able to lower interest rates without causing inflation to spike or tipping the economy into recession.
Lower interest rates are generally positive for markets because they make it cheaper for firms and consumers to borrow money.
Lower corporate borrowing costs can fuel growth, R&D, acquisitions, and other capital-intensive projects that boost stock prices.
Factor #3: Optimism about corporate earnings.
While earnings season is still underway, the consensus is that corporate earnings are looking solid so far.
That’s great news for markets.
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A recent survey of corporate leaders also found that the majority expect company profits to increase.
Taken together, that's a positive for the bulls.
However, there are several risks we’re watching.
With markets regularly testing new highs, stock valuations are also somewhat high.
That means some stocks may be overvalued.
If investors lose optimism about growth, markets will likely retreat. That being said, markets have continued to trend higher over the years regardless of valuations being more on the premium side. Look at names like the magnificent 7 stocks. These names have been "overvalued" for years, but continue to trend higher and beat expectations year after year. Those who bet against these names or even just avoided investing in them have been let down time and time again.
Uncertainty surrounding American politics and global geopolitics is also high.
While elections and conflicts generally don’t have long-term effects on markets, they can certainly trigger selloffs.
Overall, we’re still cautiously optimistic about where markets are going in the final months of the year.
It can be tempting to look at market highs and decide to sell and stand on the sidelines.
However, timing markets perfectly is impossible and you risk missing out on future growth.
We’re carefully watching market trends and economic data as they are released.
If you would like to schedule a call to discuss your portfolio and retirement plan, reach out to our team: https://www.clarkgroupam.com/schedule-a-call
Sources
2. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/