The stock market has been on fire over the past 21 months. Since October 10, 2022, the market has risen 58% (as measured by the S&P 500 and including dividends).
58% is a huge increase!
The question on everyone’s mind is how long can this keep going?
The answer to that question is simple, and it never changes. WE DON’T KNOW.
However, historical data and current economic context can help us at least form some opinions on this current bull market.
Since 1950 we’ve gone through 11 bear markets. A bear market is when the stock market drops at least 20% from its high before recovering and setting a new high.
The good news about a bear market? It is always followed by a bull market. And in the 11 bull markets that followed, the returns have been phenomenal.
The median return from the bottom of the bear market to the to the top of the bull market is 108%. The best bull market was from 1987 to 2000 when the market rose 582% over that 13-year period. The worst bull market was from 1966 to 1968 when it “only” rose 48%.
However, taking out those extremes, you get the median of about a 108% return before we head into a bear market again.
That’s great news. Based purely on those historical numbers we’re only about halfway through this bull market.
Understanding history is great, but it’s also important to have some context on the current economy and how that can play into the performance of the stock market.
Currently, the economy is strong, but it’s softening, and that’s by design. Interest rates have been elevated for a while now to help dampen spending and inflation.
We’re starting to see the effects of that. Retail and restaurant spending is softening, new home builds are softening, and inflation is coming down. However, they’re all still at healthy levels.
My personal opinion is that the economy will continue to ride this momentum. A rate cut or two by the end of this year will keep that momentum going, but all indicators point towards the economy continuing to grow and expand at healthy levels.
For now, I expect this bull market to continue towards the historical median (108%).
We’re always watching momentum in the stock and bond market and will make the appropriate changes for clients when risk is too high. Until then, we’ll continue to ride the wave of this bull market!