Mitch's Mailbox

April 10th, 2023

Are We in a New Bull Market?

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David D. from Williamsburg, VA asks: Hi Mitch, my question is about whether we’re in a new bull market or not. The market appeared to withstand the banking crisis pretty well, and I’m curious if you think we’re moving on from the inflation issue. I appreciate any insight you can offer!

Mitch’s Response:

Thank you for writing. Though I will say – answering a question about whether we’re in a new bull market is very difficult, if not impossible. We’ll only know when a new bull market officially begins with the benefit of hindsight, usually about 9 months to a year after the actual bottom. I think it’s too early to call.1

In fairness to your question, however, the S&P 500 was up about +8% in Q4 2022 and another +6% or so in Q1 2023, even with the banking ‘crisis’ injecting fresh uncertainty into the economic outlook. Stocks’ resilience over this stretch has been encouraging.

Bull or Bear Market?
 
In the current environment, there is no better time to understand the ins and outs of a bull vs. bear market. The uncertainty of the bear market can be scary – How long will it last? How far will stocks fall? How much will it damage my nest egg?
 
That’s why I’d like to help you understand these market downturns and the steps you can take to protect your assets from potential damage. You’re invited to get our free guide – Everything You Need to Know About Bear Markets.2
 
If you have $500,000 or more to invest, get this helpful guide today. It walks through the history and types of bear markets, how investors typically react to extreme volatility, and what we can learn from the history of bear markets and pandemics.
 
Download – Everything You Need to Know About Bear Markets2

I would also point to three other factors that suggest a new bull market could be nigh, if not underway. The first is U.S. corporate earnings. Generally speaking, we expect the stock market to bottom about 6-12 months before a trough in earnings – since stocks tend to discount future profit growth. According to Zacks Investment Research, it looks like we’re about 6-9 months away from earnings staging a rebound, which to me suggests the stock market could be rallying in anticipation of this brighter outlook.

Source: Zacks Investment Research3

The second factor I’d point to is ‘peak interest rates,’ or the thinking that the Federal Reserve could be nearing the end of this tightening cycle. The Federal Reserve has projected a peak in the Fed funds rate of 5.1%, which suggests one or possibly two more quarter-point rate hikes this year and a pause after that. Over the last 40 years, the average return for the S&P 500 following the Fed’s last rate hike is +19%. Tacked onto the rally we’ve already seen in the last two quarters, that would make it pretty clear a new bull market has begun, in my view.

The final factor I’d point to is a recession. Everyone seems to have an opinion on whether there will be a recession and when it will begin, which I think implies that a mild economic downturn is already baked into stock prices. The arrival of the recession would simply signal that we’re closer to economic recovery on the other side, which would arguably be enough to drive a sustained rally in stocks.

I’m not making any predictions as to the timing of the new bull market, and would again suggest there is a good chance it started last October. The bottom line, in my view, is that this is not a time to avoid stocks given the three factors I’ve described above. For investors focused on long-term growth, being on the sidelines early in a bull market is not the outcome you want.    

To help you get more insight into additional factors that shape bull markets versus bear markets, I recommend reading our free guide – Everything You Need to Know About Bear Markets.4 This guide will help you understand what causes bear and bull cycles, including our viewpoint on the best ways to navigate volatility and protect your assets.

Get helpful information such as:

If you have $500,000 or more to invest, click on the link below to get this free guide today!

Disclosure

1 Forbes. March 29, 2023. https://www.forbes.com/sites/hannahchapman/2023/03/29/when-will-the-stock-market-turn-around-the-answer-might-be-hiding-in-plain-sight/?sh=37ecfbc64db1

2 Zacks Investment Management reserves the right to amend the terms or rescind the free Everything You Need to Know About Bear Markets offer at any time and for any reason at its discretion.

3 Zacks. March 29, 2023. https://www.zacks.com/commentary/2072169/analyzing-the-evolving-q1-earnings-landscape

4 Zacks Investment Management reserves the right to amend the terms or rescind the free Everything You Need to Know About Bear Markets offer at any time and for any reason at its discretion.


DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.

The Russell 2000 Index is a well-known, unmanaged index of the prices of 2000 small-cap company common stocks, selected by Russell. The Russell 2000 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The Russell 3000 Growth Index measures the performance of the broad growth segment of the US equity universe. It includes those Russell 3000 companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium term (2 year) growth and higher sales per share historical growth (5 years). The Russell 3000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The Russell 3000 Value Index measures the performance of the broad value segment of the US equity value universe. It includes those Russell 3000 companies with relatively lower price-to-book ratios, lower I/B/E/S forecast medium term (2 year) growth and lower sales per share historical growth (5 years). The Russell 3000 Value Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
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