Inside Markets — Bull Market

U.S. growth has been resilient, financial conditions are easy, corporate capex is rising thanks to the accelerated depreciation provision and there’s incremental clarity on trade policy. It’s a bull market, which means the primary trend is higher, but summer liquidity conditions and bearish fund flows in September could make near-term risk/reward more challenging. Over the last several weeks, we paraphrased John Templeton’s original quote that “bull markets are born on pessimism, grow on skepticism, and die on euphoria.” In our view, we are a long way from euphoria but the incremental trade clarity could have depleted skepticism to a point where the market can spend a few weeks consolidating gains.

The SPX has rallied more than 25% from the April low (~75 trading days), which is nothing to be afraid of on its own. Forward returns after a rally like this have been consistent with the SPX generating positive 1-year returns in every occurrence. The returns have also been quite strong with an average 1-year performance of ~20%. Shorter timeframes show strong returns as well with the next 3-months generating an average gain of ~7% and an average 6-month gain of ~13%.