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The two-year-old bull market in stocks could last for another year, NDR strategists said.
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That’s assuming three positive catalysts fall into place, they added.
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Median gains in the third year of a bull market are about 13%, the firm said in its analysis.
The latest bull market in stocks may still have a long life ahead of it, according to Ned Davis Research.
Strategists at the research firm said that the two-year-old bull run could potentially last for another 12 months. As long as three positive catalysts continue to boost the market, there’s no reason stocks can’t climb higher, NDR said in a note this week.
Of the 13 bull markets that lasted for at least two years since 1949, stocks have continued to climb higher for a third year unless the economy entered a downturn or encountered a Black Swan event, such as the sovereign debt crisis in Europe, or the US credit downgrade in 2011, the firm said.
In one instance, the bull market ended after the Fed reversed its rate cut decision, spooking investors.
“Bull markets do not die of old age,” strategists wrote. “The table underscores our view that absent a Fed policy error, hard landing, or external shock, the path of least resistance is a continuation of the bull market.”
Of all the bull markets that lasted for at least three years since 1949, stocks gained a median 13.1% in their third year, Ned Davis Research said.
The S&P 500 has gained 60% since the index entered bull market territory in October 2022. Those gains have largely been on the back of three positive catalysts, the firm said, suggesting that stocks could continue to do well as long as the positive factors remained in play.
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Disinflation: Cooling inflation has “defined” the current bull market, the firm wrote. While progress in lowering inflation seemed to stall in the early half of the year, prices have continued to trend closer to the Fed’s 2% inflation target, clocking in at 2.5% in August.
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Avoiding a recession: The US needs a soft-landing for stocks to continue to do well. Recession risks, though, look “low over the near-term,” strategists said, with GDP clocking in at a robust 3% the last quarter.
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Strong earnings: Corporate earnings growth needs to be solid for markets to continue their uptrend. Earnings growth among S&P 500 firms was estimated to be around 4.6% over the third quarter, according to FactSet. If that proves to be true, that will mark the fifth straight quarter of earnings growth, the analytics firm said in a note.
“We remain bullish on US stocks on an absolute basis and relative to bonds and cash,” strategists added.
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