Economy & Markets
3 considerations for investing in a bull market
This summer, we are seeing a green wave in markets. The S&P 500 has returned 5% and has made 13 all-time highs since Memorial Day (for a year-to-date total return of 18% and 37 all-time highs). So why are the bulls having their time in the sun?
To start, inflation is no longer threatening. Yesterday’s CPI report showed that headline inflation was negative in June for the first time since May 2020 (meaning prices actually decreased). Even some of the stickiest items such as shelter costs finally slowed. Meanwhile, growth has cooled (but is not cold), and the labor market has normalized. A rate cut from the Federal Reserve now seems all but certain before year-end. In fact, markets are pricing in a greater than 90% probability of a cut at the September meeting (which is 68 days away, but who’s counting?).
We understand that it can feel difficult to get invested or stick to your plan when equity markets are rallying fast. In this week’s note, we take three lessons from our analysis that help us embrace the rally.
3 considerations for investing in this bull market
1. This rally is justified. Here’s why:
- Innovation is driving profits. It should no longer be a surprise to investors that the rise of AI has been a primary contributor to market performance. While the first leg of the AI rally has involved mostly hyperscalers (AMZN, META, MSFT, GOOGL) and semiconductor manufacturers (NVDA), an increasing number of other AI winners are emerging. Companies dedicated to the infrastructure buildout, such as data center REITs, energy storage and electrification, have posted an impressive average return of 26% year-to-date. This week, materials technology company Corning beat investor expectations for earnings driven primarily by demand for generative AI products, and is now up almost 50% this year. The momentum seems real. Given that less than 5% of U.S. companies are actively using AI (according to Census Bureau data), the runway could last for years to come.
- The Fed is positioned to cut rates for the right reasons. Between this week’s CPI data and Chair Powell’s congressional testimony, it seems like the Fed is finally ready to join the global easing cycle. The orderly normalization of inflation and growth supports the idea that the Fed will deliver one or two rate cuts this year. This should be good for stocks. Since 1985, five of the best 10 years for the S&P 500 came when the Fed lowered rates outside of a recession.
The most pertinent historical analog to the current environment might be 1995. Then, the Fed achieved a soft landing just as the market was beginning to appreciate the new wave of excitement around the personal computer and the internet (Netscape IPO’d in August 1995).
Today’s macro environment is in good company
Since 1985, five of the best 10 years for the S&P 500 came when the Fed was cutting interest rates without a recession
Sources: Bloomberg Finance L.P. Data as of July 11, 2024.
Past Performance is no guarantee of future results. It is not possible to invest in an index.
Past Performance is no guarantee of future results. It is not possible to invest in an index.
2. Bull markets can last for a long time. The median bull market lasts 46 months (about three times longer than the average bear market). The S&P 500’s current bull run is only 21 months old. Time is one thing; returns are another. The median bull market total return is 110%. The current bull market total return is only 50% as of the end of June.
If this bull market merely matches the median, it could last another two years (with the potential for an) additional ~60% cumulative return. Given the strength of the market over the last nine months, we aren’t surprised that some investors are feeling “rally fatigue” or think the market is due for a correction. But history indicates that time is on the bull’s side.
A history of S&P 500 bull and bear markets
S&P 500 total return during bull and bear markets*, %
Sources: Bloomberg Finance L.P. Data as of June 30, 2024. *S&P 500 total return calculated from peak to trough for bear markets and trough to peak for bull markets. Bull market confirmed once the S&P 500 total return index reaches previous all-time high.
Past Performance is no guarantee of future results. It is not possible to invest in an index.
Past Performance is no guarantee of future results. It is not possible to invest in an index.
3. S&P 10,000? Could be sooner than you think. Trends such as equity returns are not a good reason to sit on the sideline. Our 2024 J.P. Morgan Asset Management Long-Term Capital Market Assumptions project a 7% return for large-cap stocks over the next 10–15 years. While that may seem like a far cry from the 28% total returns we have seen over the last year, a 7% annual return would imply that the S&P 500 will hit the 10,000 mark in less than a decade (we are trading between 5,500 and 5,600 today).
Don’t let all-time highs get in the way either. The market has made an all-time high in one out of four trading sessions this year. While some investors are reticent to “buy high,” the data suggests that investing at highs has not notably impacted returns. Actually, over the last 50 years, investors were better off getting invested at an all-time high than they were on any other day.
Investing at highs has not notably impacted return
Avg. S&P 500 forward price return across time periods, 1970 – present, %
Sources: Bloomberg Finance L.P., J.P. Morgan. Data as of June 30, 2024. "Investing at all time highs" represents average of rolling forward returns calculated from each new S&P 500 record high for the subsequent 3 months, 6 months, 12 months, and 24 months intervals. “Investing at non-all-time highs” represents the average of rolling forward returns over the same intervals from days in which the S&P 500 was not at a new high.
Past Performance is no guarantee of future results. It is not possible to invest in an index.
Past Performance is no guarantee of future results. It is not possible to invest in an index.
While there could be volatility on the road ahead, we think today’s momentum should remind investors about the importance of both staying invested and aligning their investment portfolios to their long-term goals.
Historically, the good times are much more frequent for the U.S. markets and the economy than the bad. In the spirit of embracing the rally, laissez le bon temps rouler—let the good times roll.
Your J.P. Morgan team is here to help.
All market and economic data as of July 2024 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.
The S&P 500 Index or Standard & Poor’s 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the United States.
The S&P 500 Equal Weight Index is the equal-weight version of the widely used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight of the index total at each quarterly rebalance.
Investing in equities involves risk. The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to “stock market risk” meaning that stock prices in general may decline over short or extended periods of time.
Commodities Investments in commodities may have greater volatility than investments in traditional securities. The value of commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Investing in commodities creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
Given the complex risk-reward trade-offs involved, we advise clients to rely on judgment as well as quantitative optimization approaches in setting strategic allocations. Please note that all information shown is based on qualitative analysis. Exclusive reliance on the above is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. Note that these asset class and strategy assumptions are passive only—they do not consider the impact of active management. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell securities. Forecasts of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The outputs of the assumptions are provided for illustration/discussion purposes only and are subject to significant limitations.
“Expected” or “alpha” return estimates are subject to uncertainty and error. For example, changes in the historical data from which it is estimated will result in different implications for asset class returns. Expected returns for each asset class are conditional on an economic scenario; actual returns in the event the scenario comes to pass could be higher or lower, as they have been in the past, so an investor should not expect to achieve returns similar to the outputs shown herein. References to future returns for either asset allocation strategies or asset classes are not promises of actual returns a client portfolio may achieve. Because of the inherent limitations of all models, potential investors should not rely exclusively on the model when making a decision. The model cannot account for the impact that economic, market, and other factors may have on the implementation and ongoing management of an actual investment portfolio. Unlike actual portfolio outcomes, the model outcomes do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. The model assumptions are passive only—they do not consider the impact of active management. A manager’s ability to achieve similar outcomes is subject to risk factors over which the manager may have no or limited control.
The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield are not a reliable indicator of current and future results.
RISK CONSIDERATIONS
- Past performance is not indicative of future results. You may not invest directly in an index.
- The prices and rates of return are indicative, as they may vary over time based on market conditions.
- Additional risk considerations exist for all strategies.
- The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
- Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.
The S&P 500 is up big time year-to-date. That doesn’t mean you should wait on the sidelines.
Sarah Stillpass
Global Investment Strategist
Published Jul 12, 2024
EXPERIENCE THE FULL POSSIBILITY OF YOUR WEALTH
We can help you navigate a complex financial landscape. Reach out today to learn how.
Contact us
