Stock Markets Analysis & Opinion

S&P 500: Despite Series of ATHs, Bull Market Still Young in Historical Terms

  • The S&P 500 quickly recovered from a 5.5% decline and reached an all-time high, validating the uptrend that began in mid-October 2022.
  • The bull market has lasted 581 days with a 49% increase, driven by expectations of a Fed rate cut and strong corporate earnings.
  • European stocks are becoming more attractive due to lower P/E ratios, higher dividend yields, and the likelihood of the ECB lowering interest rates before the Fed.
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  • The S&P 500 experienced a 5.5% decline from late March through mid-April but quickly recovered, returning to an all-time high in no time.

    The record high of the S&P 500 validates the uptrend that began in mid-October 2022. According to market canons, a bull market is defined as a rise of more than 20% after a decline of over 20%.

    This bull market has now lasted 581 days with a 49% increase. While this may seem substantial, historical data shows that the average bull market duration is around 1,010 days with a 114% rise.

    Eighty percent of S&P 500 members are above their respective 200-day moving averages, a strength not seen since September 2021.

    The market continues to be driven by two main catalysts: expectations of a Fed rate cut and corporate earnings surpassing market expectations. Barring healthy corrections, the primary uptrend is expected to continue.

    Additionally, Bank of America's global survey of fund managers indicates investor optimism is at its highest since November 2021.

    Over the long term, the stock market has proven to be the best investment. Over the past 100 years, the U.S. stock market has achieved an annual return (after inflation) of 6.6%, outperforming other assets such as bonds (3.6%), bills (2.7%), and gold (1%). This translates to greater returns and increased purchasing power over time.

    For perspective, one dollar invested in stocks in 1802 would be worth $705,000 by 2012. In contrast, that same dollar invested in bonds would grow to $1,780, and in gold, it would be worth less than $5.

    Investor Sentiment (AAII)

    Bullish sentiment, i.e. expectations that stock prices will rise over the next six months, was unchanged at 40.9% and remains above its historical average of 37.5%.

    Bearish sentiment, i.e. expectations that stock prices will fall over the next six months, declined to 23.3% and remains below its historical average of 31%.

    Are European Stocks More Attractive Than Their American Counterparts Now?

    Despite the positive prospects for US markets, there are several reasons why an increasing number of investors are choosing European equities. Just to name the few more important:

    1. European stocks trade at a lower price-to-earnings (P/E) ratio compared to Wall Street.
    2. Dividend yields in Europe are more than double those in the US.
    3. The European Central Bank (ECB) is likely to start lowering interest rates before the Federal Reserve (Fed) does, and with greater intensity. This is notable because historically, the ECB has typically lagged behind the Fed, waiting for the US to make the first move.


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