The S&P 500 index closed at an all-time high on Friday, surpassing its previous all-time high set in early 2022. The gains show investors have overcome fears of rising interest rates and panic over a recession that had dominated much of stock trading. For the past two years.
Rather, they are now betting that lower interest rates will lead to higher corporate profits while the economy remains on relatively solid footing.
The S&P 500 has struggled to break records, having been up for weeks before finally rallying on Friday, but the new all-time high puts a wall on the wall as to whether the recent bull market is up. This should put an end to the debate in town. Does the rise in stock prices reflect a permanent shift in sentiment, or is it simply a rebound that fades as concerns about the economic outlook resurface?
For the average person, it doesn't matter what analysts label the stock market when it's heading up, but when it hits new highs, it becomes more common to hear talk about a “bull market.” It will be.
Here's what you need to know about the market now.
What makes this a bull market?
“Bull market” is not an official term. There is no governing body to say what it is or decide when it started (as in the case of recessions). But on Wall Street, there are two common ways this label is applied.
Some say a bull market is confirmed when a major index, such as the S&P 500, is 20% above its recent low. By this metric, a bull market was confirmed in June when the S&P 500 Index ended 20% above its October 2022 low.
However, some were quick to dismiss this standard as too easy for the market to meet. They use his second definition of a bull market, which requires stock prices to rise above their previous highs.
As of Friday, by either measure, the S&P 500 is in the midst of a bull market.
When did the bull market start?
The current bull market began in October 2022, when the S&P 500 Index hit its most recent low. Since then, the index has risen about 35%.
How long will the bull market last?
Bull markets can last more than a decade or even months. Stocks are often in a bull market.
The last bull market lasted just under two years, starting in March 2020 and ending in January 2022. Prior to that, stock prices had been in a bull market for nearly 10 years, from March 2009 at the height of the Great Recession to February 2020 due to the impact of the new coronavirus infection. It has emerged as a global threat.
When was the S&P 500 last recorded?
The index peaked on January 3, 2022, the first day of trading that year. Low interest rates and high consumer spending, spurred by stimulus checks and the rollout of coronavirus vaccines, boosted the economy.
“There was a sense of euphoria that we were experiencing in post-pandemic life,” said John Lynch, chief investment officer at Comerica Wealth Management.
But days later, the Fed, concerned about inflation, released details of its meeting that suggested it may start raising interest rates to slow the economy. The index ended the week down about 2.5%, marking the beginning of a checkered decline that lasted until October, with stocks 27% below their January highs.
The Federal Reserve began a campaign to raise interest rates in March 2022, increasing borrowing costs for businesses and consumers. Investors fearing an economic recession dumped stocks as the Federal Reserve gradually raised interest rates from near zero to a 22-year high in the range of 5.25% to 5.5%.
After that, data began to show that the labor market was cooling and inflation began to moderate. Investors began betting that Fed policy was all but over, and when the central bank suggested it was considering a rate cut in 2024, the decline reversed and stocks rebounded past their previous highs.
What does a bull market mean to the average investor?
Maybe it's nothing. Indeed, the fact that stock prices are rising is good news for people with 401(k) retirement plans, and for people with large investments in the stock market (often high-income Americans). Even better news for people.
But Mark Wilson, a financial advisor at Miles Wealth Management in Irvine, Calif., said the record shouldn't change the behavior of most investors. Wilson said he advises his clients not to base their decisions on daily news in the financial markets. He said. News that the stock market is high often creates fear that the stock market is bound to fall.
“Some people get anxious because they imagine the stock market to be like a heart monitor that goes up and down,” Wilson said. He added that while the stock market has been turbulent and doesn't break records every day, it generally tends to rise over time.
Mr Wilson said what was important for long-term investors was the value of the asset at the time they needed the cash. Additionally, it's important to realize that the S&P 500 is just one index. Pension and retirement plans invest money across asset classes that don't all start at the same time.
What does this mean for the economy?
Rising stock prices can encourage companies to expand, and for the 60% of Americans who own stocks, a bull market means they may feel a little richer as their long-term savings increase in value. Rupert Watson, an economist at asset management firm Mercer, says that while they may feel like they're in a better financial position, it's the size of their paycheck that makes them more likely to spend more.
“The most important thing for people on average incomes is whether they have a job and whether their wages are increasing,” he says.
What will end the bull market?
A bull market ends when a stock's price falls 20% below its previous high. This period is known as a bear market.
The S&P 500 last entered a bear market in 2022, as investors balked in the face of stubborn inflation and rising interest rates.
However, even if the stock price does not fall that much, there is a possibility that it will rebound to some extent.
Inflation is moderating, but some analysts warn it is too early to declare victory. Prices rose an annualized 3.4% in December, down from a peak of 9.1% in 2022 but still above the Federal Reserve's 2% target.
If inflation trends unexpectedly go in the wrong direction, the Fed may not cut rates as quickly as investors expect.
“The most important thing that could reverse a bull market is that inflation doesn't come down,” Watson said.