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Why the S&P 500’s bull market drive is probably only underway



It has been a year since the pandemic for the first time dazzled the United States and turned many jobs, forms of schooling and socializing into events that stayed at home.

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

This is one of the two main reasons why analysts at Truist Wealth believe a sustained recovery for the S&P 500 index SPX,
-1.31%
still has room to run.

This chart shows that the S & P 500’s current bull market run may be both too short-lived and too limited in terms of price gains to be over anytime soon, at least if the last six decades of performance apply during a pandemic.

Today’s S & P 500 bull market is too short, sparse in the return department.

Truist Wealth

The bars show that the average S&P 500 bull market since 1957, when the benchmark was introduced, resulted in price gains of 179% and that the good times lasted an average of 5.8 years, which is comparable to today’s return of 76% for benchmark in smaller than a year.

US stocks began to swim into the correction territory about 12 months ago after the coronavirus pandemic first began to cut off travel and trade globally, a rocky period followed by the major US stock markets that cut fresh lows in late March.

But after quickly recovering their losses in 2020, equities this year have continued to touch a number of highs that have been all the way through, thanks in part to trillions of dollars of fiscal and monetary stimulus that have pushed through the economy as decision-makers appear keep households hard hit by the crisis and keep confidence and liquidity high on Wall Street.

Recently, the same forces have also raised concerns that the good times, post-COVID, may already be fully baked into stock prices and other financial assets, and that high-flying stocks and risky parts of the debt market may be heading for trouble if current inflation is taking hold, or borrowing costs for businesses and consumers are becoming too high.

S&P 500, Dow Jones Industrial Average DJIA,
-0.39%
and Nasdaq Composite Index COMP,
-2.70%
was hit by unstable patches last week when the 10-year-old Treasury TMUBMUSD10Y,
1.483%
interest rates increased, and again on Wednesday, when the return on the benchmark bond was seen approx. 1% higher than the year before 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 technology countries again came under selling pressure.

Related: Cathie Woods highflying ARK ETF just entered a bear market – a sign of the times?

So how does today’s rise from a low-cost environment compare to the ’50s?

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

Equities, bond yields are climbing together.

Truist

“Although there are many differences between the 1950s and today, there were some similarities, such as very high US debt levels due to the war, a Fed activist and a post-war boom in the economy,” wrote Keith Lerner, chief marketing strategist at Truist, in a Wednesday card. ”Interest rates rose from 1.5% at the beginning of the decade to almost 5% at the end.Despite two recessions, the S&P 500 rose during the decade by 257% based on price and 487% on a total return. “

This time, Federal Reserve officials have repeatedly promised to avoid tightening monetary conditions while keeping policy rates close to zero and its $ 120 billion. Dollar pr. Month bond purchase program open until the economy fully recovers after the pandemic.

And interest-bearing bond investors have greeted the urgency among highly rated companies this week to borrow in the midst of the prospect of higher borrowing costs.

See: Businesses are struggling to borrow after last week’s extreme interest rates, which hit a quiet patch


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