It’s been a strong year for investors thus far, with the S&P 500 up by more than 10% year-to-date and many of the major indexes notching record high after record high.
Yet rather than stoking greed, these gains seem to be sparking fears for many investors, leaving them wondering if the gains might be overdone, that the market might be reaching it’s peak, and that the bull might be on its last leg.
As we pass the halfway mark for the year, Jurrien Timmer, Director of Global Macro, Fidelity Management & Research Company, shares his latest thoughts on where this bull market stands, what might be in store for stocks over the second half of the year, and what he is seeing on the longer-term horizon.
Bull Market Aging
Timmer believes that the bull market that started in October 2022 is in it’s seventh inning, still giving investors a little more time as he believes the market still has room to run. The current bull market is up more than 50% over the past 20 months. To put that in perspective, looking over the last 100 years of market history, the average bull market lasts 30 months and produces gains of around 90%.
Election Year Patterns
We are currently in year 4 of the U.S. presidential-election cycle, a year that has historically been a positive one for the markets. Thus far, the markets have been following this historical pattern very closely, this might suggest that the bull market could continue for the remainder of 2024.
Rising Earnings – Rate Cuts
High interest rates and inflation tend to put downward pressure on stock valuations. Rising markets must be fueled by either rising valuations or rising company earnings – or both. Much of the bull market so far has been due to rising stock valuations. Fortunately, it looks like the baton has been passed onto the earning side of the equation. Consensus earning estimates have risen to 12% over the next 12 months and 17% over the next 18 months.
However, one key factor over the market’s performance for the rest of the year may depend on whether the Federal Reserve (Fed) will finally cut interest rates. It is fair to say the Fed has an easing bias (as opposed to a hiking bias), given that there are signs of slowing economic growth, and inflation has come down to the 3-4% range. It now just seems to be a question of how many cuts and when.
Long-term View
Timmer believes we are coming to the end of a long-term ‘secular trend’ or super cycle. Since the financial crisis the U.S. has been in a period of above average returns driven by several factors, including low interest rates, rising margins, stock buybacks and merger and acquisitions. If his analysis is correct, the current bull super cycle could peak in 2026.
It is important to point out that a peak of the secular bull market does not necessarily mean that the market would go down after that. Rather, it would imply that the 10-year average return might shift from above-average (i.e. above 11%) to below-average (i.e. below 11%). Below average returns can still be in a rising market.
Of course, past performance is never a guarantee of future results. Investors should always use any forecast as a rough guide for strategic investment allocations.
Have a great weekend,
Tracey & Paige
Source:
https://advisoranalyst.com/2024/06/27/midyear-stock-outlook-room-to-run.html
Photo by Justin Luebke on Unsplash
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