“Bullish” Wall Street: in two years it gained 60% and broke 45 records, what can we expect in the near future?

“Bullish” Wall Street: in two years it gained 60% and broke 45 records, what can we expect in the near future?

The frenzy with which Wall Street continues to operate in the final stretch of 2024 made it unnoticed by many that the deadline was met. second anniversary of the current bull marketin which shares accumulate a rise of almost 60% from 2022 and more than 20% since the beginning of the year. However, in light of the geopolitical situation and the monetary, economic and political uncertainty It does not seem to be anything abnormal according to historical experience.

So, what to expect then. First of all, it is worth remembering that two years ago, the October 12, 2022, inflation exceeded 8%, The Fed carried out a historically aggressive strategy of raising rates and the S&P 500 index fell 25% from its peak. However, the prevailing pessimism gave rise to a new bull market, which continues to this day.

Since then, equities have gained 60% and the S&P 500 has reached 45 all-time highs. While on the economic front, in the first half of 2022 the US economy experienced a period of weakness, with a slight contraction in the first quarter and barely positive growth in the second, but, since then, GDP growth reached an average rate of 3% in the last two years and, according to the Fed’s estimate, it is on track to grow more than 3% in the third quarter.

With this panorama, and despite the inflationary winds and the high costs of loans, The most anticipated recession in recent history never materialized, since the consumer, the main engine of the US economy, remained firm.

This is due, as the economist explains John Plassard from the Swiss group Mirabaud, to: that families cleaned up their budgets after more than a decade of deleveraging; to the greater savings linked to the Government’s fiscal support; to a solid labor market and, to record wealth driven by significant appreciation in real estate and stock prices.

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What is a bull market?

Now, analysts wonder Whether the 2009 bull market reset in 2020, or 2022, or continues as it has since the 1987 crash? I mean, Is this bull market sustainable? To try to answer this question, we must first explain what is meant by a bull market. There are more or less accepted definitions, but there are secular bull and bear markets, as well as cyclical bull and bear markets.

The definitions of these cycles are not very clear. “A standard definition is that a loss of 20% or more means the beginning of a bear market and the end of a bull market, at least on a cyclical basis,” explains Plassard. History shows that, according to Yardeni Research, there have been 24 bull markets since the 1920s and 22 bear markets.

That is to say, there are many bullish and bearish markets, but the interesting thing is to observe that some bull and bear markets have followed the general trend. For example, there was a cyclical bull market from late 1929 to early 1930, when stocks rose about 50%.

As analyst Ben Carlson points out, The crash of the Great Depression did not technically bottom out until 1932. No one considered this bounce a bull market, when in fact it was.

Secular markets

But the “crash” of 1987 was quite the opposite. “No one really believes that the bull market of the 1980s ended in 1987. It was a reverse bust, but the bull market continued for many years afterward,” says Plassard. While the collapse of 2020 due to the pandemic was an important period in history. “As for the bear market of 2022, it was an ordinary market, not a gigantic financial crisis that would have altered the secular upward trend,” considers the Mirabaud economist.

In this sense, he points out that Although there have been more than 20 cyclical bull and bear markets in the last 100 years or so, there have only been six long-term secular periods. “The prolonged secular bull market in 1942 to 1965 is a good example of why a long-term bull market It cannot be terminated simply because the stock is in a technical bear market. During this period, the S&P 500 rose almost 13% after inflation, but there were setbacks along the way,” explains the expert.

It is worth remembering that There have been 4 bear markets since the mid-1940s: 1946 -27%; 1948-1949 -21%; 1957 -21%, and 1961-1962 -28%. Furthermore, we must consider that a bear market is different from a “crash”. This is in reference to the fact that over time there have been a few cases of falls of 19% on average.

Carlson counts four since the middle of the ’70: 1976-78 (-19.4%), 1990 (-19.9%), 2011 (-19.4%) and 2018 (-19.8%). “The big difference between the current cycle and previous ones is that this secular bull market started at the bottom of a devastating bear market, which did not happen in previous bull cycles,” Plassard clarifies.

What has changed?

Today the Government and the Fed shoot with bazookas. Thus, monetary and fiscal policy are used during financial crises on a scale never seen before. For example, during the Great Depression, the Fed and the government aggravated the situation by tightening Fed spending and policy. But does this mean that the bear markets are over?

“The answer is obviously no, since the addition of fiscal and monetary stimulus during the worst recessions means that those declines are likely to be shorter than in the past (assuming the stimulus does not disappear). As we usually remember, economic cycles are faster,” he states.

How is the future coming?

Last October 4, Goldman Sachs (GS) raised its year-end target for the S&P 500 to 6,000 and released a 12-month target of 6,300.

David Kostin, chief equity strategist at GS, noted, however, that The already high valuations could limit the index’s upward path in 2025. Geopolitical uncertainty and the US elections may be sources of short-term volatility, but history offers reasons for optimism.

In this regard, Plassard points out that the average bull market of the last 11 cycles lasted almost five years, with the majority (eight of 11) lasting until the end of their third year, suggesting that The current bull market could still be in its early or mid-stage phase.

“However, the third year may not go smoothly. Returns tend to be moderate, with equities rising only half the time, while the other half the equities pull back to catch their breath. From a fundamental point of view, the prospects for growth, interest rates and corporate profits will likely determine the direction of stock markets.maintains the expert.

Source: Ambito

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