Are we in a bull market?
By January 2024, the US had been in a bull market since October 2022, at least according to one measure. As per a report by Reuters, the news was confirmed by the S&P 500, which made the disclosure following a two-year record high close on January 19. The index recorded a 20 per cent gain following a trough – considered by some to be the mark of a bull run. It came as the Dow Jones reached a new record high, and the Nasdaq saw significant recovery after its 2022 dip. Many investors are now asking, are we still in a bull market, and if so, is now a good time to invest?
What is a bull market?
A bull market is a financial market undergoing rising asset prices and positive investor sentiment. It’s essentially a prolonged period during which the prices of securities, such as stocks, bonds, and commodities, consistently trend upward. This upward trajectory typically lasts for months or even years, driven by strong investor confidence, economic growth, and favourable market conditions.
In a bull market, investors are optimistic about the future performance of the market and are more willing to buy securities with the expectation of selling them later at a higher price. This optimism often leads to more buying activity, further fuelling the upward movement of prices. In short, bull markets are associated with economic expansion, increased corporate profits, and overall prosperity.
Several factors contribute to the onset and continuation of a bull market. These include positive economic indicators such as low unemployment rates, strong consumer spending, robust corporate earnings, and supportive monetary policies from central banks. Additionally, technological advancements, innovations, and positive geopolitical developments can also bolster investor confidence and drive market growth.
Investors often closely monitor key indicators and market trends to identify and capitalise on opportunities within a bull market. Technical analysis involves studying price charts and trading volumes, and fundamental analysis, which assesses companies’ financial health and performance, are commonly used strategies to navigate and profit from bull markets.
However, it’s important to note that bull markets are not without risks. Excessive optimism and speculation can lead to asset bubbles, where prices become detached from their intrinsic values, potentially resulting in sharp corrections or market downturns. Therefore, investors must exercise caution and employ risk management strategies to protect their investments during bull markets.
Is there a bull market in 2024?
According to one expert, investors should expect a bull market ‘encore’ in 2024. Investment officer Ken Fisher predicted it ‘likely’ that global stocks would see double-digit gains this year in an article for business news website N Business. Writing for the outlet, he told investors to expect a “good to great” year, which would be fuelled by a surge in tech:
“Expect moderate double-digit gains for world stocks – as economic resilience and political tailwinds fuel a good to a great year. Tech and big growth should lead early before strength broadens mid-year in a value-led shift.
“A sneaky truth about young bull markets: If they reach one year old – as this one did in October – they nearly always see a second birthday. They are tougher to kill than anyone fathoms. Expect that.
“Tech and other big global growth stocks should lead early in 2024 – tied to still-low growth rates. It is when their inherent growth power shines brightest. So, expect a bull market encore in 2024. Well-known, pre-priced worries cannot kill this young bull market.”
However, Fisher’s optimism is not shared in all quarters. Morgan Stanley’s Lisa Shalett warned of “looming uncertainties” that could postpone a bull market’s onset. Shalett also cautioned investors to be wary of U.S stocks, which she said were being overbought with low volatility. In a summation of her January 22 outlook report, she stated:
“Ultimately, we’re entering a year of lingering uncertainty. Inflation remains despite the market’s hope that the fight to tame it has already been won. Government deficits—now running at about 7% of GDP and rapidly adding to a record debt pile of $34 trillion—may not be sustainable. And importantly, the question of where interest rates will end up for the long term hasn’t yet been answered. As the year unfolds, we recommend investors stay patient and focus on the long term.”
Some analysts have gone further – questioning whether the 20 per cent gain metric, which is a classic indicator of the beginning of a bull, is the right one. Writing for Bloomberg, John Authers warned that what we are currently looking at may turn out to be a bubble. He said:
“If bond yields stay elevated, presumably because inflation is sticky, then this new high will come to look like the high of October 2007 — a blip in a longer-term trend that helped sucker some in at the top. If the market is really right that bond yields will return to their box, then stocks can carry on into a true bull market. The former seems more likely to me, but neither can be discounted.”
Should I invest in 2024?
Investing can be one of the best ways to beat inflation. In the long run, the stock market has a proven track record of winning out over inflation. But that means the best investments are often those that span the long term. This suggests that trying to jump in or out of the market for short-term wins might not always be the best strategy. As deVere CEO Nigel Green says: “It’s about time in the market, not timing the market.”
Investing in the stock market has the potential to outpace inflation due to the long-term growth potential of equities. While inflation erodes the purchasing power of money over time, investing in stocks offers the opportunity to generate returns that exceed the inflation rate, thereby preserving and growing the real value of investments.
Stocks represent ownership stakes in companies, and historically, the value of well-managed businesses tends to increase over time. As companies grow their revenues, profits, and assets, the value of their stocks typically appreciates, leading to capital gains for investors. This capital appreciation can exceed the rate of inflation, allowing investors to maintain or increase their purchasing power over the long term.
Moreover, many companies also distribute a portion of their profits to shareholders in the form of dividends. Dividend payments provide an additional source of income for investors, which can help offset the effects of inflation. Companies that consistently grow their dividends over time can provide investors with a growing stream of income that keeps pace with or even surpasses inflation rates.
Moreover, investing in the stock market offers the potential for compounding returns. Reinvesting dividends and capital gains allows investors to earn returns not just on their initial investment but also on the accumulated profits, leading to exponential growth over time. The power of compounding can significantly enhance the returns generated from stock market investments, helping investors stay ahead of inflation in the long run.
It is important to note that investing in stocks carries risks, including the possibility of loss of capital due to market volatility, economic downturns, or company-specific factors. While the stock market has historically delivered positive real returns, you should consult with a financial advisor before making any investment decisions.