The momentum may reverse into a narrow-range, in the near-term, while the undercurrent of the rally is still positive
Stock markets have jumped over 56% since their March lows with many market participants questioning whether equity valuations are too stretched now. However, if history is any indication, it is just the beginning of a multi year bull run, aided by an economic expansion, that could help stock market investors lap up manifold gains. Post the previous three share market bottoms during a recession, equities have entered a trend that has taken them on a gaining spree that lasted an average of 107 months. Currently stock markets have managed to gain in all months post March, except May and September.
Global money manager ClearBridge Investments in a recent report highlighted that since the 1970s whenever an economic expansion has started after a recession, the market has gained for at least 12 months. ClearBridge Investments highlighted that in 1982 the stock markets started gaining in November and continued to march higher till July of 1990, helping equity investors benefit from the 157% gain in the S&P 500 during this phase. Similarly between 1991 and 2001 S&P 500 zoomed 209%. During the same period, domestic benchmark S&P BSE Sensex managed to gain 255%.
After the Dot-com bubble and the September 11 attacks, again bulls returned and helped investors take advantage of the economic expansion. During this phase, between 2001 and 2007, Sensex skyrocketed 560%. Lastly after the Global Financial Crisis, till the onset of the coronavirus pandemic, Sensex managed to gain over 360%. The average stock market change during the last three bulls runs has been 391% and the rally has lasted for an average 107 months.
“We continue to believe stocks are in the midst of a secular bull market. If correct, this would bode well for equity investors in the coming years,” analysts at ClearBridge Investments said in the report. They observed that there is a strong likelihood the economy has entered the next expansion. The S&P 500 index recently posted its best 50-day percentage change since 1975. In the 50-days since June 3 this year, S&P 500 jumped 39.6%.
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