The S&P 500 closed more than 20% off its October lows on Thursday, signaling the start of a new bull market.
At 248 trading days, the latest run to a bull market was the longest bear run for the S&P. Since 1948. The benchmark index’s resilient rise came amid the most aggressive Federal Reserve interest rate hike campaign in four decades, regional banking turmoil and lingering recession worries that haven’t fully materialized.
Bank of America research indicates that the S&P 500 rises 92% in the 12 months following a bull market, compared with a historical average of 75% in any 12-month period since the 1950s.
“We’re back in bull territory, which could be part of what’s getting investors excited about equities again,” Savita Subramanian and Bank of America Global Research’s equity strategy team wrote in a note on Friday. “If investors feel pain in bonds, low returns or negative opportunity costs — if real rates rise from here — they should be motivated to return to equities, especially stocks that benefit from rising real rates (cycles).”
History shows that the average path for stocks can be non-linear. Ryan Detrick is Chief Market Strategist at The Carson Group monitored The 13-times stock rose 20% to a 52-week low since 1956. Stocks were generally active in the first months, with the benchmark index falling an average of 0.5% in the first month after hitting bull market territory.
But in the long run, things are very positive. After rallying 20% from the market decline, the S&P 500 has averaged a 10% return over the next six months and a 17.7% return over the next 12 months, according to Detrick Research.
“As we’ve been saying throughout the year, we continue to expect stocks to do well this year and the upward move is solid, and studies like this have done little to change our view.” Detrick said.
Bespoke’s latest chart tells how stocks typically perform in the months after entering a bull market.
The upward path for stocks remains rocky. Next Wednesday, Markets expect The Federal Reserve is pausing its interest rate hike process. That’s not necessarily the case for stocks, as economists believe the pause will come as the Federal Reserve waits for the “lagged impact” of its monetary policy.
If so, a slowdown in economic growth could follow, allowing inflation to moderate but also pressuring earnings growth. Morgan Stanley recently pointed out this scenario.
But in the long run, as always, history is on the side of stocks.
“Sentiment, positioning, fundamentals and supply/demand support remain underinvested in equities and cyclicals as the main risk today – the possibility of a surprise is still positive,” wrote Subramanian and BofA.
Josh is a Yahoo Finance reporter.
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