The recent rally in the S&P 500, up nearly 20% from its October 2022 low, has sparked a flurry of speculation: Are we on the brink of a new bull market? Despite concerns about interest rates, recessions, banks, and geopolitical tensions, the market has shown surprising resilience. However, it’s important to remember that we’re still in a somewhat uncertain territory, and it’s essential to approach this potential shift with cautious optimism.
Let’s start by understanding what we mean when we talk about ‘bull’ and ‘bear’ markets. These terms are shorthand for general market trends and aren’t necessarily scientific. A bear market traditionally begins when stocks fall 20% from a high, while a bull market is more difficult to pin down. It isn’t sufficient to simply have a 20% rise from a recent bottom; most market watchers agree that we need to see stocks hit a new high to confirm we’re in a bull market1.
The Current State of the Market
As of June 2023, the S&P 500 is about 10% below the previous high reached before the bear market began1. Despite the rally, we’re still a little short of the milestone that would mark the start of a bull market. However, it’s fair to say that we’re flirting with the idea. The recent rally has been driven by a few big tech stocks and enthusiasm for artificial intelligence, underscoring the momentum that stocks seem to be gathering1, 2.
The Rally’s Lack of Breadth and Recession Concerns
This enthusiasm, though, comes with a caveat: the rally lacks breadth. The average S&P 500 company has seen gains of less than 3% this year. The reliance on the performance of a few high-flying stocks could signal potential volatility ahead. It’s also important to remember that the conversation around a possible recession has been persistent, and concerns around interest rates remain.
While some, like JPMorgan Chief Operating Officer Daniel Pinto, have predicted a “meaningful” earnings recession by the end of the year, others point to strong variables such as the labor market, which remains robust and even “boom-like”3. The strong labor market has kept consumers upbeat, ensuring discretionary spending continues, which is crucial for economic health3.
However, there are “cracks in the firewall,” as Mark Zandi of Moody’s Analytics puts it, citing issues such as higher delinquencies in the credit card market and auto loans in the sub-prime credit space. Despite these cracks, the consumer is still very much in the game3.
While the market seems to be in surprisingly good shape and might even be in a new bull market, we’re not quite there yet. The S&P 500 closed at 4,273.79 on June 5, 2023, up from its October 12, 2022, low of $3,577.034, 5. This is a significant rise, but still short of the previous high, which is the benchmark for a bull market.
A Balanced Perspective
It’s important to celebrate how far we’ve come since the bear market began but also to remain flexible and prepared for any potential pullbacks or volatility. The market has shown resilience in the face of adversity, but as we know, markets are inherently unpredictable. Therefore, it’s crucial to maintain a balanced perspective, staying informed, and making decisions based on careful analysis and sound financial advice.
Sources:
- https://www.axios.com/2023/06/06/us-stock-market-bullish-vs-bearish
- https://www.bloomberg.com/news/articles/2023-06-05/s-p-500-set-to-enter-bull-market-as-fed-fuels-dip-buying-surge?leadSource=uverify%20wall
- https://finance.yahoo.com/news/recession-talk-rages-on-despite-robust-jobs-market-191308453.html
- https://finance.yahoo.com/quote/%5EGSPC/history
- https://www.statmuse.com/money/ask/s%26p+close+on+october+12%2C+2022
The information contained herein is for educational purposes only. It is not intended to provide, and should not be relied on for, any tax, legal or investment advice. You are advised to seek the advice of a qualified professional prior to making any decision based on any specific information contained herein.
Insurance Products guarantees are subject to the financial strength and claims‐paying ability of the issuing company, and may be subject to restrictions, limitations or early withdrawal fees. Annuities are not FDIC insured.
Links are provided strictly as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the website to which you are linking.
