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A new bull market has arrived on Wall Street after the S&P 500 rebounded 20% from its October low.
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The rally ended what became the longest bear market since 1948, when stocks fell 25%.
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A resilient economy and strong corporate earnings could drive further gains in the stock market.
The longest bear market since 1948 is officially over after the S&P 500 closed above 4,292 on Thursday, representing a 20% rally from its Oct. 12 closing low of 3,577.
The threshold was reached on the back of better-than-expected corporate earnings, a resilient economy and labor market, and the expectation that the Federal Reserve is about to pause its aggressive cycle of interest rate hikes.
It’s those same three factors that could boost the stock market further in the future, especially as Wall Street analysts are starting to realize that things might not be as bad as some had originally anticipated. of 2023. Recession expectations have been pushed back to 2024 and corporate earnings estimates have been raised.
Slowing inflation is also improving the outlook, as a continued decline would give the Fed leeway to halt interest rate hikes and possibly take a break at its policy meeting next week.
According to Carson Group chief market strategist Ryan Detrick, it would not be unusual for stocks to continue their rally after cementing a new bull market.
Since 1950, Detrick found that there have been 13 times stocks have rebounded 20% from their 52-week low, and 12 of those times have resulted in stock prices rising 12 months later, this which resulted in a 92% win ratio and an average S&P 500. gain of 17.7%. Moreover, in 10 of those 13 times, stock lows were in the rearview mirror.
“The only times it didn’t work out? Twice during the tech bubble implosion and once during the Great Financial Crisis. In other words, some of the worst times to invest in stocks,” said Detrick earlier this week.
And it doesn’t hurt that volatility has been crushed on Wall Street, with the Cboe Volatility Index, known as the VIX, essentially telegraphing that the high volatility regime of 2022 has shifted to a low volatility regime. more in line with the previous bull markets seen from 2014 to 2018.
Finally, many investors are not positioned for a bullish rally in stocks, and to prepare for a continued rally, they should unwind short positions and buy stocks, which could push prices even higher.
According to NewEdge Wealth’s Ben Emons, short positions in the stock market “are at even more dramatic levels than during the Great Financial Crisis” while the amount of liquidity in money market funds “has ballooned”.
According to Emons, it is these two factors that represent “dry tinder” for a potential merger that could prolong the current bull market rally.
Read the original article on Business Insider