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The stock market thundered ahead to yet another all-time high last week – the 22nd record close for the year and the best first quarter gain in five years.
There are good reasons why Wall Street is in a cheery mood. Company profits are at record highs. So is consumer spending. Wages are growing faster than prices. The average American has never been wealthier. Jobs are plentiful. The Fed is signaling it wants to lower rates.
The bull market is now up 47% from the October 2022 low. We define a bull market as a 20% or more rally that was preceded by a 20% or more decline. A bear market is a 20% or more decline that was preceded by a 20% or more rally.
Since the Roaring Twenties, there have been 27 bull markets. In fact, Wall Street has been in a bull market 78% of the time. This is one reason why optimism is our default.
Today’s bull market is relatively young and actually isn’t all that impressive so far. The average bull market in the past lasted twice as long and booked twice the gain as the current bull market. The Dot Com bull market was nine times longer and 12 times the gain.
Here’s your color guide. The green areas are bull markets. Bear markets are in red. The S&P 500 is dark blue.
Bull markets have momentum. The Wall Street Journal reports that, going back to 1950, whenever the S&P 500 earns more than 8% in the first quarter of a year (as it just did), the average gain for the next nine months was 9.7%.
Not to be a killjoy, but stocks don’t go up forever. Recessions and bear markets have not been outlawed. The past does not guaranty the future.
The stock market is a fickle beast. Selloffs can happen without warning. As one commentator puts it, “No one falls out of love quite like Wall Street.”
We suspect a pullback may be around the corner. Corrections are an ingrown feature of bull markets. They come with the turf and are no reason to get out of stocks.
The famed Fidelity investor Peter Lynch gives the best advice…”Far more money has been lost by investors’ preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves.”
Stay invested and diversified. We favor US based companies including technology and homebuilders.
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