The S&P 500 bull market celebrated two years old over the weekend, but history suggests there may be growing pains in the year ahead. The benchmark large-cap index has been rising steadily since bottoming out on Oct. 12, 2022, driven in large part by excitement about artificial intelligence and the profits it could bring to technology stocks. During this period, the S&P 500 Index rose more than 60%. .SPX mountain 2022-10-12 The S&P 500 index rose more than 60% in this bull market. However, previous bull markets have shown a tendency to lose momentum in their third year. Research from Bank of America shows that the previous 10 bull markets for the S&P 500 averaged -2% returns over 25 to 36 months. The Bullish Bank of America equity strategist Ritesh Samadhiya said in a note to clients that a round of downgrades masked lackluster earnings growth, pointing to a lower price-to-earnings ratio. “However, the current trend is anything but typical.” The current bull market is bucking the trend and performing better in year two than in year one. The current increase is 22% in the first year and 33% in the second year, compared with the historical average of 44% and 13% respectively. Another thing to remember is that even if the third year of a bull market is positive, it tends to be bumpy. “All 11 bull markets celebrating their second anniversary experienced at least one drawdown of 5% or more in the following 12 months, while some experienced more severe declines,” CFRA’s Sam Stovall said in a note to clients. And become the new bear market. Of course, the S&P 500’s plunge could be an opportunity for small-cap stocks to catch up. The small-cap Russell 2000 index has yet to hit new highs during its current rise and has been lagging the S&P 500, but it has been underperforming the S&P 500 recently. There have been some notable short-term rallies over the past few months.
Bull markets tend to slow down in their third year | Real Time Headlines
RELATED ARTICLES