Bull market celebrates its first birthday, but will it sustain?

Stocktake: Stocks have gained an astonishing 80% since bottoming out last year

History suggests further gains are likely, says LPL Research’s Ryan Detrick. Photograph: iStock

History suggests further gains are likely, says LPL Research’s Ryan Detrick. Photograph: iStock

 

What a difference a year makes.

This time last year, markets were in freefall. The S&P 500 had lost more than a third of its value in less than a month, and investors feared further bloodshed was coming, with Bank of America’s March 2020 fund manager survey finding an “historic” collapse in sentiment.

No one predicted the fastest bear market in history would also be the shortest. Stocks bottomed exactly a year ago today and have since gained an astonishing 80 per cent.

History suggests further gains are likely, says LPL Research’s Ryan Detrick. Now one year old, this bull market is “still just an infant”, says Detrick, who notes all previous bull markets have “never been lower during the second year of their existence”.

The counter-argument is that stocks have never gained so much in the first year of a bull market. The average bull market was up 43 per cent after a year and 61 per cent after two years, notes Detrick.

Might that indicate 2020’s run is unsustainable? Not necessarily; the bull market that began in March 2009 was up 68 per cent after a year, says Detrick, and 94 per cent after two years.

Again, bears might respond that valuations hit generational lows in March 2009. In contrast, today’s elevated valuations resemble those seen in late-stage bull markets.

The wisest course of action, perhaps, is to recognise that markets are unpredictable. No one foresaw March 2020’s collapse, just as no one foresaw the scale and rapidity of the recovery. Stick to your investing plan and remember that volatility is the price you pay for superior long-term returns.

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