Wars are raging in Ukraine and the Middle East. The U.S. presidential election could bring a horrendous mess. Oil prices are edging up anew. The 10-year Treasury yield is rising again. Stock valuations are stretched, with the S&P 500’s price/earnings ratio at a lofty 24.
Still, amid all this, equities have been in a bull market for two years now, up almost 62%. On Monday, the S&P index increased 0.77%. Legendary investor John Templeton characterized such advances this way: “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” We haven’t quite seen the ill-fated euphoria yet, and the bad news sure is prominent in the headlines.
Still, not a lot of it is darkening investors’ psyches these days. Adam Turnquist, chief technical strategist at LPL Financial (who resurrected the Templeton quote), noted is a recent commentary that the maximum drawdown for the index since its Oct. 12, 2022, closing low “has only been 10.3%, running below the average maximum drawdown of all bull markets of -14.2%.”
Will the good times keep on rolling for stocks? There’s a decent chance. Sam Stovall, chief investment strategist at CFRA Research, pointed out in a report that “all 14 bull markets since 1947 recovered a median of 194% of the prior bear, implying, but not guaranteeing, that this bull market has further to run.”
Earnings prospects are encouraging. Goldman Sachs has lofted its S&P 500 earnings per share projection to $268 from $256. The U.S. economy expanded faster than expectations in this year’s second quarter, helped by continued strong consumer spending.
Certainly, Stovall cautioned, “history says that investors need to be prepared for a possible setback in the coming 12 months.” He calculated that the average return from the 11 past bull markets that reached the two-year mark was just 2.0% (although the figure was 5.2% if you exclude the ones that kept on tumbling and became bear markets during before the third year was out).”
Lately, Wall Street savants have been very bullish, playing catch up. The S&P 500 now is 20% higher than analysts’ consensus for 2024, predictions made at the end of last year.
Adam Turnquist, chief technical strategist at LPL Financial (who resurrected the Templeton quote), noted is a recent commentary that the maximum drawdown for the index since Oct. 12, 2022, “has only been 10.3%, running below the average maximum drawdown of all bull markets of -14.2%.”
To be sure, the road often was bumpy, he added: All these bull runs suffered 5% dips and five had selloffs between 10% and just short of 20%, the threshold for a bear market.
Artificial intelligence has been the big driver of late, fueling tech’s longstanding role as the market leader, bringing along everyone else. Think Nvidia, Supermicro and Vistra. But participation has been broader than some realize, as a Bespoke Investment study pointed out. Consider the three descendants of the stodgy old General Electric. The aerospace unit, now carrying the historical ticker of GE, has seen its stock surge 350% during this bull market, per Bespoke. GE Venova (electric power) has doubled, and GE Healthcare is ahead 50%.
According to FactSet Research, the information technology sector has issued the highest number of positive earnings guidance reports of all the index’s 11 sectors, with 25, well above the segment’s five- and 10-year averages.
Such pleasant tidings have propelled the market quite well in the past, and it’s hard to see how the trend would fade anytime soon.