After being down three weeks and suffering the first 5% pullback of the year, we upgraded our view of equities in late April. Since then, stocks have rebounded and are on pace for a fourth-straight week of gains and finally broke out to a new all-time high on the back of a lower-than-consensus inflation report (slide 2).
The S&P 500 has now gained nearly 7% since the mid-April low. Following the end of the previous 28 pullbacks of more than 5% we have seen since stocks bottomed during the financial crisis in 2009, the median gain until the next correction has been 17.4%, with a minimum gain of 8.5% (slide 3). This suggests upside potential remains, even while it won’t likely be a straight line higher.
Further, we view the breakout to an all-time high as a healthy sign and typical characteristic of a bull market (slide 4).
Comparing the current bull market to previous ones since the 1950s also suggests upside potential remains (slide 5):
- The current bull market has gained 48% versus the median of 108% (average = 184%).
- The current bull market is 1.6 years old versus the median 4.6 years (average 5.4 years).
- In 9 of the 10 previous bull markets since the 1950s, returns were stronger than the current one.
Importantly, while the S&P 500 is up strongly from the October 2022 lows, it’s up only 11% since the January 2022 peak (slide 6).
Even while the primary trend appears higher, we still expect periodic pullbacks. The S&P 500 has had only one 5% pullback this year versus the average of about 3 per year historically.
Bottom line
Until the weight of the evidence shifts, bull market rules apply. That is, investors should stick with the primary market uptrend and view pullbacks as opportunities.
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