The current bull market, celebrating its second anniversary this week, is sparking debate among investors. While some point to historical data suggesting a longer lifespan for the rally, others express concerns about rising yields, geopolitical tensions, and the upcoming US presidential election. This article delves into the contrasting viewpoints, examining the arguments for continued market strength and the potential headwinds that could derail the ongoing bullish trend. We’ll explore historical precedents, current economic indicators, and expert opinions to provide a comprehensive analysis of the market’s future direction.
Is the Two-Year-Old Bull Market Ready for a Longer Run?
The S&P 500’s bottom on October 12, 2022, marked the start of the current bull market. While October 2023 has seen some early dips, prompting concerns, analysts at Carson Group offer a contrasting perspective, citing historical data. Their analysis of S&P 500 data from 1950 reveals that this bull market is only the second-youngest of the last 12, suggesting significant potential for continued growth.
Key Takeaways: Bull Market’s Longevity and Potential Threats
- Historical data suggests average bull markets last over five years, implying the current market is still in its early stages.
- Strong revenue and earnings growth currently fuel the market’s upward trajectory.
- Concerns exist that the market’s rally might be shorter-lived because it didn’t follow a recession, unlike others that historically lasted longer.
- The upcoming US presidential election and the nation’s substantial debt pose significant challenges and uncertainty.
- Potential increases in 10- and 30-year bond yields could significantly impede equity market growth.
Historical Precedents: A Bull Market’s Expected Lifespan
Ryan Detrick, chief market strategist at Carson Group, emphasizes that **”Although many might think this bull market has gone too far and is getting old, that isn’t the case at all. If you look back at history, bull markets last more than five years on average, making this one at two years actually young.”** This perspective highlights the relative youth of the current market compared to historical averages, suggesting ample room for further expansion. The analysis performed by Carson Group emphasizes a historical context, suggesting that anxieties about market longevity might be premature. The data speaks to the potential for a longer bull run, counteracting immediate anxieties about market volatility.
Analyzing the Data
The Carson Group’s extensive research into S&P 500 performance since 1950 provides a robust foundation for their optimistic outlook. By comparing the current market’s age and performance to previous bull markets, they offer a data-driven counterpoint to the prevailing concerns and uncertainties in the market.
Fundamental Drivers: Revenue Growth as a Catalyst
Kevin Gordon, senior investment strategist at Charles Schwab, corroborates this viewpoint, pointing to the robust underlying economic fundamentals as a driving force behind the current market rally. **”Strong revenue growth — on top of earnings growth — is the upwards driver at the moment,”** he indicates, highlighting the key factors underpinning the bull market’s continuation. This combination sets the stage for sustained market growth rather than a precipitous decline.
The Nuance of Post-Recession Markets
However, Gordon also acknowledges a crucial caveat. He notes that **”If you’re just using that as your guide, then history would be consistent with the current rally being a little bit more short lived,”** referencing the fact that this bull market did not follow a recession. Historically, bull markets following recessions tend to exhibit longer lifespans. This nuanced perspective highlights the limitations of solely relying on historical averages without considering unique contemporary circumstances.
The Looming Election and National Debt: Uncertainties Ahead
A more cautious stance is taken by Komal Sri-Kumar, president of Sri-Kumar Global Strategies, who injects a significant variable into the equation – the upcoming US presidential election. He believes that the impact of the **”total debt of the country”** significantly undermines any simple extrapolation of past market behavior. His concern focuses on the long-term implications of the national debt, regardless of who wins the election.
The Bond Market’s Reaction: A Potential Headwind
Sri-Kumar further emphasizes the potential for rising bond yields as a major threat to the equity market’s continued growth. He anticipates that **”once the new president takes office, you’re going to have the bonds again questioning whether the deficit is sustainable. I see the 10- and 30-year yields rising significantly, and that’s going to be the headwind for equities.”** This perspective highlights a potential external factor that could significantly impact the market’s trajectory irrespective of the current bullish momentum. The interaction between bond yields and equity markets requires careful consideration. Any substantial rise in long-term bond yields could result in decreased long-term investment into equities.
Conclusion: A Balancing Act of Optimism and Caution
The current debate regarding the bull market’s future underscores the inherent complexities of market prediction. While historical data and robust economic indicators offer grounds for optimism, significant uncertainties remain, notably regarding the upcoming election and the long-term consequences of the national debt. The potential for rising bond yields adds another layer of complexity, highlighting the need for a balanced approach that takes both positive and negative factors into account. Investors must navigate this landscape with a clear understanding of both the potential for continued growth and the potential headwinds that could significantly alter the trajectory of the current bull market.
