The bulls are back in town, at least according to the technical qualifier of a 20% advance off a bear market low. There is additional supporting evidence for the S&P 500’s bull market designation, including, but not limited to, the market’s uptrend formed by consistent higher lows and higher highs since October 2022 and the S&P 500’s short-, medium-, and long-term moving averages all appropriately stacked above one another.
While breadth has been underwhelming over the last month and formed a negative divergence from price action, participation in the latest rally has recently picked up. As shown below, 58% of S&P 500 stocks are trading above their 200-day moving average (dma). This is a move in the right direction, especially with notable improvements in financial and energy sector breadth, but the current reading remains well below the high watermark of 79% reached in February. In addition, overbought conditions have become widespread in the technology sector—the main engine of this year’s rally—and resistance at 4,300 looms for the S&P 500. Stocks have had a nice run, but at elevated prices, the bar for further gains gets higher, especially with high-quality bonds offering attractive yields and elevated risk of a late-2023 recession.
What Happens Next?
With the S&P 500 officially entering a new bull market, the October 12, 2022 low can also be labeled as a bear market low. It took 165 trading days for the S&P 500 to surpass the 20% threshold off the bear market low, marking the second longest period to confirm a new bull market in nearly 75 years.
Forward returns after a bull market is confirmed have historically been strong. While one-month returns are underwhelming, the S&P 500 has posted average and median gains of 18%-19% 12 months after a bull market officially started, based on the date the index breached the 20% bull market threshold.
The duration of a bull market can vary significantly, but historically they have been longer-term. Since 1929, the average S&P 500 bull market has lasted for 39.4 months and produced an average gain of 130.1%. If you exclude the Great Depression era (1929-1939), the average bull ran for 51 months and produced an average gain of 147%.
The S&P 500 officially entered bull market territory yesterday after a 165 trading day climb off the October 12, 2022 low. After a bull market is confirmed, forward returns have historically been strong, although one-month returns have been underwhelming. Resistance at 4,300 could be hard to clear if the overbought technology sector pauses and/or pulls back. We suspect broader participation will be required for a sustainable breakout, and until then, we believe a better entry point into this new bull market lies on the horizon. In the event of the S&P 500 sustainably clearing the 4,300 mark, fear of missing out and short covering could accelerate price action to the upside.
- The S&P 500 officially entered bull market territory yesterday. It took 165 trading days to surpass the 20% qualifier for a technical bull market, marking the second longest period to confirm a new bull market in nearly 75 years.
- What happens next? Forward returns after a bull market is confirmed have historically been strong. The S&P 500 has posted average and median gains of 18%-19% 12 months after the index has cleared the 20% threshold.
- How long does a bull market last? The duration of a bull market can vary significantly, but historically they have been longer-term. Since 1929, the average S&P 500 bull market has lasted for 39.4 months and produced an average gain of 130.1%.
- Resistance doesn’t care about bull markets. The S&P 500 is retesting key resistance near 4,300, which marks a major retracement level of last year’s bear market and the August highs. At the same time, the technology sector—the main engine of this year’s rally—has become overbought. A consolidation and/or pullback in technology could make 4,300 a challenging hurdle to clear on a sustainable basis.
- If the market can sustainably break out above 4,300, fear of missing out and short covering could accelerate price action to the upside. Money market funds are also at record highs.
As always, if you have questions about this topic or would like to review your investment allocation with me please click the link below to book a phone, zoom or office meeting at your convenience.
Looking forward to speaking with you soon,
Bryan Foronjy, CFP®
Founder and Principal Wealth Manager
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