Despite significant geopolitical tensions, rising oil prices, and a volatile U.S. political landscape, equity markets have witnessed a robust bull run, with the S&P 500 surging nearly 62% over the past two years. As worries about the global economy and political stability loom, investors maintain a resilient outlook, evidenced by recent performance like the 0.77% rise in the S&P index. Notably, the legendary investor John Templeton once articulated that bull markets thrive amid pessimism and skepticism before eventually peaking at a euphoric state. Presently, the market sentiment seems to be cautiously optimistic, suggesting an ongoing appetite for stocks, despite identified concerns.
Investors are currently buoyed by relatively modest drawdowns in the market, a metric highlighted by Adam Turnquist from LPL Financial. He noted that the S&P 500 index saw only a maximum drawdown of 10.3% since reaching a closing low on October 12, 2022, which is below the average drawdown for prior bull markets. While some market analysts ponder whether the upward trajectory can persist, historical patterns indicate a possibility for continued gains, especially as past bull markets have typically rebounded significantly after overcoming prior bear market losses. In particular, Sam Stovall from CFRA Research revealed that all 14 bull markets since 1947 have showcased a median rebound of 194%, suggesting that this current rally may also have legs.
Corporate earnings outlooks are increasingly optimistic, with firms like Goldman Sachs recently adjusting their S&P 500 earnings per share expectations upward to $268, reflecting strong second-quarter economic growth supported by robust consumer spending. However, caution remains a theme in investment strategies, as historical data points to the necessity of preparing for potential setbacks, with average returns from bull markets reaching only 2% after the two-year mark. Nevertheless, those bear markets which managed to maintain an upward momentum often yielded significantly higher returns.
The sentiment among Wall Street analysts has shifted towards bullishness, which could reflect a growing catch-up mentality within the market. Recent evaluations indicate that the S&P 500 now stands 20% above initial earnings predictions made at the end of the previous year. This discrepancy shows a broader positive consumer sentiment and investment performance more potent than previously anticipated. However, Turnquist emphasizes the typical volatility within bull markets, underscoring frequent dips and occasional sell-offs that could test investor resolve.
The tech sector is leading the charge in this latest market rally, driven by advancements in artificial intelligence. Companies like Nvidia, Supermicro, and Vistra exemplify this trend, showcasing the tech industry’s continued dominance in market performance. However, this bull market extends beyond tech giants, including a diverse array of companies like the various divisions of General Electric, with substantial gains reported across sectors. According to Bespoke Investment Group, GE’s aerospace division enjoyed a staggering 350% increase in stock value during this bull run, reflecting how recovery and growth span a range of industries.
Overall, the current market dynamics exhibit a mixture of optimism fueled by strong corporate earnings and sector performance, particularly in technology and related industries. Despite cautionary notes about potential setbacks and drawdowns, widespread positive earnings guidance within sectors indicates a robust economic foundation. With the history of bull markets suggesting the likelihood of continued growth, investors remain engaged, eager to participate in the upward trend while being aware of the possible volatility that traditionally accompanies such market phases.