It has been a year since the pandemic hit the United States for the first time, turning many jobs, forms of education and forms of socialization into home events.
But only 11 months have passed since the start of the new bull market for the S&P 500.
This is one of the two main reasons why analysts at Truist Wealth think of a sustained recovery in the S&P 500 SPX index,
still have room to run.
This chart shows that the current bullish run on the S&P 500 may be too short and too limited, in terms of price gains, to end soon, at least if the last six decades of performance apply during a pandemic.
The bullish market for today’s S&P 500 is very short, cramped in the returns department.
Truistic Wealth
The bars show that the S&P 500 bull market average since 1957, when the benchmark was first introduced, resulted in price gains of 179% and that the good times lasted 5.8 years on average, which compares with today’s 76% return to the benchmark in less than a year.
US stocks started to fall into the correction territory about 12 months ago, after the coronavirus pandemic began to disrupt global travel and trading, a difficult period that was followed by the main US stock benchmarks reaching new lows in the end of March.
But, after quickly recovering its losses in 2020, this year’s stock continued to hit a series of historic highs, in part thanks to the trillion dollar fiscal and monetary stimuli that are flooding the economy, as policymakers look. to support families affected by the crisis and maintain confidence and liquidity on the rise on Wall Street.
More recently, these same forces have also raised concerns that good times, post-COVID, may already be fully embedded in stock prices and other financial assets, and that bullish stocks and riskier parts of the debt market may be doomed to run into problems if runaway inflation settles or the costs of borrowing for businesses and consumers become too high.
The S&P 500, Dow Jones Industrial Average DJIA,
and Nasdaq Composite Index COMP,
were hit by volatile patches last week, like the 10-year Treasury TMUBMUSD10Y,
yield skyrocketed, and again on Wednesday, when yields on the benchmark were identified about 1% higher than in the previous year, or about 1.47%.
All three major stock indices closed lower on Wednesday for the second day in a row, with bond yields rising and technology stocks again under selling pressure.
Related: Cathie Wood’s ARK ETF has just entered a bear market – a sign of the times?
So how does today’s rise from a low-rate environment compare to the 1950s?
True analysts also have a graph showing that the yields on the S&P 500 and the 10-year Treasury rose together during the 1950s.
Stocks and bond yields go up together.
Truist
“While there are many differences between the 1950s and today, there were some similarities, such as very high levels of US debt as a result of the war, an activist Fed and a boom in the postwar economy,” wrote Keith Lerner, chief strategist market share at Truist, in a note from Wednesday. “Interest rates rose from 1.5% at the beginning of the decade to almost 5% at the end. During the decade, despite two recessions, the S&P 500 increased 257% based on price and 487% based on total return. “
This time, Federal Reserve officials have also repeatedly pledged to avoid tightening monetary conditions, while keeping interest rates close to zero and their $ 120 billion a month bond buying program open until the economy fully recover from the pandemic.
And yield-hungry bond investors hailed the rush among highly rated companies this week to borrow amid the prospect of higher borrowing costs.
To see: Businesses rush to borrow after last week’s extreme rate spikes hit a lull