Broker Check

History May Not Repeat, But Could It Rhyme?

June 06, 2024

The current bull market for stocks began in October 2022 and has pushed the S&P 500 higher by 54%. It’s defied nearly every strategist’s forecast, and in fact, most have spent the last year catching up by increasing their price targets for the index. Even Wall Street’s most prominent bear at Morgan Stanley recently turned positive on the outlook for U.S. stocks1.

So much optimism is making some investors question just how much fuel is left in the tank, especially going into the summer months. However, history suggests that nothing we’ve seen is out of the norm. If anything, it’s been relatively weak compared to other bull markets.

Truist compiled the returns and durations of the last ten bull markets going back almost 70 years.  Nine had better gains than the current one, with an average duration of about five years.

Occam’s Razor tells us that the most likely explanation is the simplest, and in this case, this slower start is probably due to the relatively weak selloff that began in late 2021. Softer landings produce smaller declines and more muted recoveries because stocks were less oversold.

The current bull market is 20 months old, so per the chart above, there could be a lot of life left. More specific to a year like this, when stocks saw a positive first quarter and a down April while the economy was not in a recession, June turned out to be a positive month for equities 11 out of 11 times, with a median gain of +3.4%2. Furthermore, the June through August stretch during the 4th year of an election cycle is higher 75% of the time, with an average gain of +7.3%3.

History also suggests this could last longer than August. For starters, consensus expects double-digit annual earnings growth through 20254. Per the chart below, earnings are the most important driver of asset prices over the long run.

Secondly, stocks usually go up. The chart below from First Trust Advisors shows that the stock market has been in a bull market 80% of the time. Even after hitting all-time highs, prices still tend to rise higher because all-time highs happen all the time.

Nick Maggiulli runs a popular investing blog, and he recently published the chart below plotting all-time highs as red dots going back to 19155. Notice how they cluster, meaning all-time highs tend to lead to more all-time highs.

Lastly, not everything is good right now. The economy isn’t firing on all cylinders, the Fed hasn’t cut interest rates, some consumers have maxed out credit cards, the number of job openings is falling, there’s still a massive shortage of single-family homes across the country, government spending has reached clinically insane levels, and there’s a presidential election in five months.

History has proven time and time again that bulls are rewarded for investing when it’s not comfortable and punished when the coast is clear. The chart below shows no shortage of bears via the record amount of cash on the sidelines.

Simply put, we don’t appear anywhere close to the point in the cycle where euphoria has set in. If anything, this massive amount of dry powder could fuel the next several innings of this bull market.

The bottom line

Bull markets are like snowflakes, where no two are identical. However, the foundation of bull and bear markets often look similar, and being able to spot recurring themes and behaviors along the way can offer clues to where we may be headed next.

One of the best ways to spot these is to become a student of financial markets history. Not only can it help detect repeating patterns and inform investment decisions, but it’s also one of the best ways to inoculate yourself from making emotional decisions in response to things you’ve never seen or read about.

The bottom line is that past performance does not predict future returns, but history often rhymes for a reason. If it does once again, we could be in a bull market for quite a while longer.










This material has been prepared for informational purposes only and should not be construed as a solicitation to effect, or attempt to effect, either transactions in securities or the rendering of personalized investment advice. This material is not intended to provide, and should not be relied on for tax, legal, investment, accounting, or other financial advice. You should consult your own tax, legal, financial, and accounting advisors before engaging in any transaction. Asset allocation and diversification do not guarantee a profit or protect against a loss. All references to potential future developments or outcomes are strictly the views and opinions of Richard W. Paul & Associates and in no way promise, guarantee, or seek to predict with any certainty what may or may not occur in various economies and investment markets. Past performance is not necessarily indicative of future performance.