{"id":12381,"date":"2023-04-10T17:23:33","date_gmt":"2023-04-10T17:23:33","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12381"},"modified":"2023-04-10T17:23:33","modified_gmt":"2023-04-10T17:23:33","slug":"are-we-in-a-new-bull-market","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/are-we-in-a-new-bull-market\/","title":{"rendered":"Are We in a New Bull Market?"},"content":{"rendered":"\n

David D. from Williamsburg, VA asks: <\/em>Hi Mitch, my question is about whether we\u2019re in a new bull market or not. The market appeared to withstand the banking crisis pretty well, and I\u2019m curious if you think we\u2019re moving on from the inflation issue. I appreciate any insight you can offer!<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thank you for writing. Though I will say \u2013 answering a question about whether we\u2019re in a new bull market is very difficult, if not impossible. We\u2019ll 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\u2019s too early to call.1<\/sup><\/p>\n\n\n\n

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 \u2018crisis\u2019 injecting fresh uncertainty into the economic outlook. Stocks\u2019 resilience over this stretch has been encouraging.<\/p>\n\n\n\n

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I would also point to three other factors that suggest<\/em> 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 \u2013 since stocks tend to discount future profit growth. According to Zacks Investment Research, it looks like we\u2019re 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.<\/p>\n\n\n\n

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Source: Zacks Investment Research3<\/sup><\/em><\/strong><\/p>\n\n\n\n

The second factor I\u2019d point to is \u2018peak interest rates,\u2019 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\u2019s last rate hike is +19%. Tacked onto the rally we\u2019ve already seen in the last two quarters, that would make it pretty clear a new bull market has begun, in my view.<\/p>\n\n\n\n

The final factor I\u2019d 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\u2019re closer to economic recovery on the other side, which would arguably be enough to drive a sustained rally in stocks.<\/p>\n\n\n\n

I\u2019m 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\u2019ve described above. For investors focused on long-term growth, being on the sidelines early in a bull market is not the outcome you want.    <\/p>\n\n\n\n

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Get helpful information such as:<\/p>\n\n\n\n