It has been a year since the pandemic first blindsided the U.S., turning many jobs, forms of schooling and ways of socializing into stay-at-home events. However, it is only about 11 months since the new bull market for the benchmark S&P 500 started.
That is one of two key reasons why analysts at Truist Wealth think a sustained upswing for the S&P 500 index still has room to run.
The chart below by Truist Wealth shows that the S&P 500’s current bull-market run may be both too short-lived and too limited, in terms of price gains, to be over anytime soon, if the past six decades of performance apply during a pandemic.
The bars show that the average S&P 500 bull market 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, compared to today’s return of 76% for the benchmark in less than a year.
U.S. stocks began to swoon into correction territory some 12 months ago after the coronavirus pandemic first began to cut off travel and trade globally, a rocky period that was followed by the major U.S. equity benchmarks hitting fresh lows in late March.
However, stocks have continued to register a series of all-time highs this year after quickly recovering from their 2020 losses. This is attributed to trillions of dollars that have been pumped into the economy through fiscal and monetary stimulus packages, as policymakers look to rescue households hit hard by the pandemic and to keep confidence and liquidity running high on Wall Street.
Recently, there have been fears that the good times, post-COVID, might already be fully baked into stock prices and other financial assets, and that high-flying equities and riskier parts of the debt market could be headed for trouble if runaway inflation takes hold, or borrowing costs for companies and consumers get too high.
The S&P 500, Dow Jones Industrial Average, and the tech-heavy Nasdaq Composite Index were hit by volatile patches last week, as the 10-year Treasury yield spiked, and again on Wednesday when yields on the benchmark bond were spotted about 1% higher year-on-year, or near 1.47%.
All three major stock indexes closed lower Wednesday for the second day in a row, as bond yields climbed and technology stocks again came under selling pressure.
Truist analysts have another chart showing that the S&P 500 and 10-year Treasury yields rates rose in concert during the 1950s.
Keith Lerner, Chief Market Strategist at Truist Wealth wrote in a note on Wednesday:
“While there are many differences between the 1950s and today, there were some similarities, such as very high U.S. debt levels as a result of the war, an activist Fed and a post-war boom in the economy.
“Interest rates rose from 1.5% at the beginning of the decade to nearly 5% by the end. During the decade, despite two recessions, the S&P 500 rose 257% based on price and 487% on a total return basis.”
This time around, Federal Reserve officials have also repeatedly vowed to avoid tightening monetary conditions, while keeping policy rates near zero and its $120 billion-per-month bond-buying program open until the economy fully recovers from the pandemic.
And yield-starved bond investors have welcomed the rush among highly rated companies this week to borrow, amid the prospects of higher borrowing costs.
So all those that have had concerns that the market is nearing a bubble should have a breather. Additionally, a few days ago, JPMorgan released a statement saying that the stock market is not in a bubble, but what is in the bubble is the fear of investors. You can read that full story here.