Investors are understandably enjoying this extended bull run, but the adage “what goes up must come down” lingers in the backs of their minds. The record-breaking market surge of recent months has sparked debate among strategists and market observers about the rally’s sustainability and how much further it has left to run.
The S&P 500’s impressive 2023 performance and repeated record highs in 2024 have naturally spurred concern about a looming market correction. However, bullish voices like Ned Davis Research Senior Portfolio Strategist Pat Tschosik maintain that the S&P 500 has the potential to continue its upward trajectory. Tschosik’s rationale hinges on historical patterns – the current 344-day bull run is significantly shorter than the historical average of 694 days, implying we could be at the halfway point.
Technical, Fundamental, and Sentiment-Driven Factors Supporting the Rally
Beyond simple historical analysis, there are more concrete reasons fueling optimism about the market’s continued climb:
Investor Sentiment: Although elevated, market sentiment is far from the levels of froth and irrational exuberance that typically precede significant downturns.
Growth Expectations: While growth expectations have been tempered somewhat from the optimism of 2023, many analysts and corporate leaders anticipate solid, if not spectacular, growth for 2024.
Economic Stability: Recent economic data points to resilience, with key indicators like unemployment and inflation showing favorable trends. This stability supports investor confidence.
Technical Analysis: Technical analysts interpret the market’s strong January gains as a bullish signal, bolstering their view of a continued rally.
Election Year Trend: Historically, markets tend to perform well in election years. While not an ironclad guarantee, this trend adds to the overall positive outlook.
Outperforming Stocks: Insights from the ‘No-Correction Club’
Tschosik’s in-depth analysis underscores the power of charts and trends. His assessment highlights companies and indices that are “over 50% of the way through their average length of days without a 20% correction and are making new highs”. This category often indicates a strong uptrend with further growth potential, and the S&P 500 falls within this promising classification.
Intriguingly, Tschosik identifies a group of 19 S&P 500 constituents that haven’t experienced a 20% correction since October 2020. This list, dominated by insurance giants, provides valuable insights. While all 19 companies have undergone more minor (at least 15%) corrections since 2020, their resilience suggests strong fundamentals and enduring market support despite broader fluctuations.
Tech’s Recovery and IBM’s Resurgence
The tech sector, a major driver of the 2023 rally, endured a turbulent 2022. Yet, with only International Business Machines (IBM) representing tech in the ‘no-correction club’, the sector as a whole might still have untapped room for growth as it works to fully recover.
IBM’s case is particularly interesting. Its recent 11-year high, fueled by its focus on AI and cloud services, highlights its potential to achieve a record run without a 20% correction. While the Nasdaq Composite has flirted with its all-time high, the record still stands. This suggests potential for tech stocks to rebound further, fueling the index’s climb as a whole.
Words of Caution
It’s crucial to remember that market corrections are a natural and inevitable part of investing. History is replete with examples of extended bull markets that have given way to significant downturns. While historical trends and strong fundamentals paint a rosy picture in the short and medium-term, long-term investors must always be prepared for shifts in the market landscape.