Two-year-old Bull Market Just Did Something That Shows There's More to Come

Saturday marks the two-year milestone of the current bull market, which began on October 12, 2022. Since hitting its low point on that date, the S&P 500 has surged nearly 62%. In 2024 alone, the index has already gained 21.2% and set 44 new record closes, reflecting strong investor sentiment and market performance.

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As the S&P 500 approaches the significant 6,000 level, bearish investors are growing increasingly nervous. They warn that as stocks climb to such heights, the risk of mistakes and market pullbacks grows. However, not everyone shares this cautious outlook.

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Ryan Detrick, chief market strategist at Carson Group, is among the optimists. His firm turned bullish in November 2022, dismissing concerns from those who predicted ongoing struggles for the stock market due to a looming U.S. recession. Contrary to those warnings, Detrick notes that the economy appears to be heating up rather than slowing down, and he believes the current bull market still has a long runway ahead.

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Detrick points out that historically, bull markets have tended to last much longer. He explains that, on average, bull markets since 1950 have lasted more than five years, with total gains surpassing 180%. With the current bull market only two years old, he argues that there is plenty of room for further growth. "A two-year bull market historically has plenty of life left," Detrick says, underscoring his belief that the market rally could continue.

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During the early stages of the current bull market, many market watchers were skeptical. Last year, some analysts pointed to a relatively modest first-year gain of around 20% as evidence that the recovery might not be sustainable. Detrick and his team, however, saw things differently. They anticipated the possibility of stronger gains in the second year of the bull market. Looking back now, with the market posting over 30% gains in the second year, Detrick believes his outlook was validated.

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As the market enters its third year of this bull run, the key question for investors is whether the rally will continue. Detrick remains optimistic. Historical data shows that out of 16 previous bull markets that followed bear markets or near-bear market conditions, 12 made it to their third year. On average, these bull markets saw gains of about 8%, with a median return of nearly 10% in the third year. While these returns are not as large as those seen in the first two years, they still represent healthy gains for investors.

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Detrick acknowledges that short-term market weakness is possible, particularly given the volatility often seen in election-year Octobers. However, he also points out that historically, the months of November and December have been favorable for stocks. This seasonal trend, combined with other factors, reinforces his confidence in the market's prospects.

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One specific statistic that leaves Detrick feeling bullish is the S&P 500’s recent streak of five consecutive positive months. Since 1950, there have been 29 other instances where the index posted five months of gains in a row, and in 28 of those cases, the market was higher a year later. This represents a 97% win rate. While Detrick cautions against making investment decisions based on any single statistic, he sees this pattern as further evidence of the market's strength, especially when viewed in conjunction with other positive signals.

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Meanwhile, as the stock market remained relatively stable at the opening bell on Friday, U.S. Treasury yields nudged higher. The 10-year Treasury yield ticked up, while the dollar index dipped slightly. Oil prices experienced a modest decline, and gold was trading at around $2,644 per ounce.

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In terms of economic data, the U.S. producer price index (PPI) for September was flat month-over-month, lower than August's 0.2% increase and below forecasts of a 0.1% rise. This indicates that inflation pressures may be easing somewhat. Additionally, U.S. consumer sentiment data for October is set to be released later in the day.

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Several Federal Reserve officials were also scheduled to speak on Friday. Chicago Fed President Austan Goolsbee was slated to give opening remarks at a community banking event, Dallas Fed President Lorie Logan was scheduled to speak at a financial services conference, and Federal Reserve Governor Michelle Bowman was set to make comments on innovation and entrepreneurship.

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In corporate news, Tesla shares fell more than 6% following Elon Musk’s unveiling of the company’s new Cybercab robotaxi. The U.S. third-quarter earnings season is now in full swing, and many companies have reported results that have been well-received by investors. For instance, shares of JPMorgan Chase, Wells Fargo, and BlackRock were all trading higher following their earnings reports. BlackRock, the world’s largest asset manager, reported total assets under management (AUM) of $11.5 trillion.

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The Schwab Trading Activity Index (STAX), which tracks actual trading behavior rather than investor sentiment, has provided some insight into market dynamics. During the COVID-19 pandemic, there was a surge in retail trading activity, fueled by the meme-stock craze. However, as the S&P 500 hit new highs in September, the STAX fell to its lowest level since January. Bespoke Investment Group interprets this decline as a sign that there is less excitement and complacency in the market compared to 2021, which could be good news for long-term bulls.

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In summary, despite some cautious voices warning of potential market setbacks, many experts like Ryan Detrick remain optimistic about the future of the current bull market. With historical data supporting the possibility of continued gains, and the economy showing signs of strength, investors may have more to celebrate as the bull market enters its third year.

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