Reuters
- The bull market in stocks is “alive and well,” according to LPL chief market strategist Ryan Detrick.
- The S&P 500 is already up more than 10% year-to-date, but Detrick sees more upside ahead.
- Discussed below are four bullish stats that suggest the bull market in stocks “could still have plenty of life left,” according to LPL.
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The stock market has been on a tear over the past year, with the S&P 500 rallying more than 80% from its pandemic low on March 23, 2020. Year-to-date, the S&P 500 is up more than 10%, and the index has hit record highs 21 times so far this year.
LPL’s chief market strategist Ryan Detrick believes the gains can continue on as the bull market in stocks enters its second year.
Detrick said in a note on Wednesday that the bull market is still “alive and well,” and that it “could still have plenty of life left” going forward. That bullish sentiment stems from historical data that shows a booming stock market in prior environments that are similar to today’s.
The four bullish stats detailed below suggest the bull market in stocks is just getting started, according to LPL’s Detrick:
1. Strong first-quarter returns bode well for the rest of the year.
The S&P 500 was up just under 6% in the first quarter of the year, which has been a sweet spot for returns going forward, according to Detrick.
“Since 1950, when the S&P 500 was up between 5% and 10% in the first quarter, the rest of the year gained another 12.4% on average and was higher 86.7% of the time,” Detrick said.
2. Stocks held above their December lows in the first quarter.
The December Low indicator, created by Forbes columnist Lucien Hooper, states that if the S&P 500 closes below its December low in the first quarter, stock are weak for the rest of the year, and vice versa.
“Stocks held above the December lows in 2021 and this could mean continued higher prices, as the S&P 500 was up more than 18% on average when this level held and incredibly was higher 33 out of 35 years,” Detrick said.
3. Significant one-year returns in stocks are followed up by more gains.
The S&P 500 was up 54% over the 12-month period ended March 2021, representing one of the largest yearly gains on record. Forward returns over the ensuing one, three, and six months have historically been weak as the market consolidates recent gains. But annual returns shined through.
“One year later the S&P 500 was higher more than 90% of the time, with only the year after the 1987 crash in the red,” said Detrick.
4. Strong breadth is a sign of a healthy bull market.
Participation among different stocks and sectors has been strong amid the stock market rally, evidenced by more than 95% of components in the S&P 500 being above their 200-day moving average. This strong reading often suggests there could be exhaustion in the near-term, according to LPL.
“But this isn’t what you see at the end of bull markets, in fact, it tends to usually happen at the start of new bull markets,” Detrick said.
The last time market breadth was this strong was in December 2003 and September 2009, which represented the early innings of two multi-year bull markets.
“The key point is after extreme market breadth like we are seeing now, overall higher prices and the bull market lasted for many more years,” Detrick said.
“It might seem counterintuitive to most investors, but big rallies like we’ve seen tend to mark the start of bull markets, not the end, so we wouldn’t bet on this bull market ending anything soon,” Detrick concluded.
LPL Research
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