Why the S&P 500’s bull streak is probably just beginning


A year has passed since the pandemic first shocked the US, turning many jobs, forms of schooling, and ways of socializing into stay-at-home events.

But it’s only been about 11 months since the new bull market for the S&P 500 started.

That’s one of two key reasons why analysts at Truist Wealth think that a sustained rally for the S&P 500 SPX Index,
-1.31%
still has room to run.

This chart shows that the S&P 500’s current bull market streak may be too short and too limited, in terms of price gains, to end soon, at least if the last six decades of performance are applied during a pandemic.

The current bull market for the S&P 500 is too short, scarce in the returns department.

Wealth Truist

The bars show that the S&P 500 average bull market since 1957, when the benchmark index was first introduced, resulted in 179% price gains and the good times lasted 5.8 years on average, which compares to the performance current 76% for the benchmark in Less than a year.

US stocks began to fall into correction territory about 12 months ago, after the coronavirus pandemic began to disrupt global travel and trade, a difficult period followed by major US equity benchmarks achieving. new lows at the end of March.

But after quickly recouping their losses in 2020, this year’s stocks have continued to hit a series of all-time highs, thanks in part to the trillion-dollar fiscal and monetary stimulus that have been pouring through the economy, to as policymakers look toward propping up households hardest hit by the crisis and keeping confidence and liquidity high on Wall Street.

More recently, those same forces have also raised concerns that the good times, post-COVID, may already be fully embedded in the prices of stocks and other financial assets, and that high-flying stocks and riskier parts of the market debt may have problems. if rampant inflation takes hold or borrowing costs for businesses and consumers skyrocket.

The S&P 500, Dow Jones Industrial Average DJIA,
-0.39%
and Nasdaq Composite Index COMP,
-2.70%
were hit by volatile patches last week as the 10-year Treasury TMUBMUSD10Y,
1,482%
the yield spiked, and again on Wednesday when the benchmark bond’s yields looked about 1% higher than the prior year, or close to 1.47%.

All three major stock indices closed lower on Wednesday for the second day in a row as bond yields rose and tech stocks came under selling pressure again.

Related: Cathie Wood’s ARK ETF just entered a bear market, a sign of the times?

So how does the current rise from a low rate environment compare to that of the 1950s?

Truist analysts also have a graph showing that the S&P 500 and 10-year Treasury yield rates rose in concert during the 1950s.

Stocks and bond yields go up together.

Truist

“While there are many differences between the 1950s and today, there were some similarities, such as very high levels of US debt as a result of the war, an activist Fed, and a postwar economic boom,” wrote Keith Lerner, chief strategist at market. at Truist, in a Wednesday note. “Interest rates rose from 1.5% at the beginning of the decade to almost 5% at the end. Over the decade, despite two recessions, the S&P 500 was up 257% based on price and 487% based on total return. “

This time around, Federal Reserve officials have also repeatedly pledged to avoid tightening monetary conditions, while keeping policy rates close to zero and their $ 120 billion-per-month bond buying program open until the economy shuts down. fully recover from the pandemic.

And yield-hungry bond investors have welcomed the rush to borrow among highly-rated companies this week, amid prospects for higher borrowing costs.

Watch: Businesses are rushing to borrow after last week’s extreme rate hike hit the calm

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