The S&P 500 index closed at a record on Friday, surpassing its old high-water mark set in early 2022. The gains show that investors have overcome fears of rising interest rates and jitters about a recession that had controlled stock trading for much of the year. Last two years.
Instead, they are now betting that falling rates will help boost corporate profits while the economy remains in relatively solid shape.
Even though the S&P 500 had struggled to move higher at the record — after bumping up against it for weeks before moving higher with a jump on Friday — the record high should also end a debate on Wall Street over whether the recent run- The uptick in stocks reflected a permanent shift in sentiment, or if it was just a rebound that will fade as fears return over the economy’s outlook.
For the average person, it doesn’t matter what analysts are labeling the stock market when it’s at an all-time high, but with new highs, they’ll be hearing a lot about a “bull market.”
Here’s what to know about the market now.
What makes it a bull market?
“Bull market” is not an official designation. There is no governing body that defines what it is, or decides when it begins (as is the case with recessions). But on Wall Street, there are two common ways to apply labels.
One says a bull market is confirmed when a major index like the S&P 500 rises 20 percent from its most recent low. By that standard, the bull market was confirmed in June, when the S&P 500 closed 20 percent above its October 2022 low.
But some people immediately rejected this standard because it was too easy for the market to meet. They use the second definition for a bull market, in which stocks rise above their previous highs.
till Friday, By both measures, 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 reached its lowest level. Since then, the index has risen nearly 35 percent.
How long does a bull market last?
Bull markets can last for more than a decade or a few months. Stocks are often in bull markets.
The previous bull market lasted less than two years, starting in March 2020 and ending in January 2022. Before that, there was a bull market in stocks that lasted nearly a decade, from March 2009 to February 2020, amid the Great Recession, until COVID-19 emerged as a global threat.
When was the last S&P 500 record?
The index set a record on January 3, 2022, the first day of trading that year. Low interest rates and higher consumer spending, stimulus checks and the rollout of coronavirus vaccines helped boost it.
“There was an excitement about what we were tasting of life after the pandemic,” said John Lynch, chief investment officer at Comerica Wealth Management.
But just days later, the Federal Reserve released minutes of a meeting that suggested the central bank was concerned about inflation and would start raising rates to slow the economy. The index finished about 2.5 percent lower that week, the beginning of a sharp decline that continued through October, when stocks were down 27 percent from their January peak.
The Fed begins its rate-hike campaign in March 2022, raising borrowing costs for companies and consumers. Worried about a recession, investors dumped stocks as the Fed gradually raised rates from near zero to between 5.25 and 5.5 percent, the highest in 22 years.
Then the data began to point to a cooling labor market and inflation began to ease. Investors began betting that the Fed was almost done with its campaign, and once the central bank signaled it was considering lowering rates in 2024, the decline reversed and stocks returned to that old level. Reached a high level.
What does the bull market mean for ordinary investors?
May be nothing. Certainly the fact that stocks are climbing is good news for people with 401(k) retirement plans, and even better news for those who have made large investments in the stock market (often high-income Americans). .
But the record shouldn’t change the behavior of most investors, said Mark Wilson, a financial advisor at Mile Wealth Management in Irvine, Calif. Mr Wilson advises his clients not to make decisions based on day-to-day news in the financial markets. Said. Often there are reports that the stock market is at a high level, which gives rise to the fear that it is certain to fall.
“People look at the stock market like a heart monitor that goes up and down, so some people get nervous,” Mr Wilson said. Although the stock market has its ups and downs and doesn’t break records every day, it generally moves up over time, he said.
For people investing for the long term, Mr Wilson said, the value of their assets matters when they need cash. Also, it is important to recognize that the S&P 500 is just an index; A pension or retirement plan will invest money in different asset classes that may not all be current at the same time.
What does this mean for the economy?
Higher stock prices can encourage companies to expand, and for the 60 percent of Americans who own stocks, a bull market means they can feel a little richer because their long-term savings are more valuable. That may make them feel better about their finances, but what’s more likely to make them overspend is the size of their paycheck, according to Rupert Watson, an asset manager and an economist at Mercer.
“The most important thing for people with average incomes is whether they have a job and whether their wages are increasing,” he said.
What will be the end of the bull market?
A bull market ends when a stock falls 20 percent below its last high – a period known as a bear market.
The last time the S&P 500 entered a bear market was in 2022, as investors retreated from stubborn inflation and rising interest rates.
But even if the shares do not fall that much, they may still fall some.
Inflation is declining, but some analysts warn it is too early to declare victory. Prices rose 3.4 percent on an annual basis in December, below a peak of 9.1 percent in 2022 but still above the Federal Reserve’s 2 percent target.
If the inflation trend unexpectedly moves in the wrong direction, the Fed may not cut rates as investors expect.
“The single most important thing that could reverse the rally is inflation not slowing down,” Mr Watson said.