Early, middle, or late? For stock investors who believe the past is prologue, it’s a mystery that matters.
Wall Street wants the answer to what sounds like an easy question: how old is the bull market? That depends, of course, on what you consider its birthday. Is it the end of the financial crisis, the end of the Covid-19 rout 11 years later, or some other point in time?
Roughly three camps exist. Long-lifers consider last year’s rout a hiccup, and therefore say the rally is nearing expiration. New bulls view the last 14 months as the first leg of a powerful rally just getting started. There’s also an in-between set who say that while this may be a new phase, it’s one where time is passing at warp speed.
“It relates to the uniqueness of the cycle. This is not your traditional economic expansion,” said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management. “There’s still so much uncertainty that it creates a wide range of outcomes.”
No question we live in interesting times. Economists are struggling to forecast the most widely followed data, missing numbers on the consumer price index and the jobs report, among others, by huge margins. At the same time, many strategists have been rushing to upgrade their year-end projections as the market runs ahead of even some of the most bullish cases.
So, where in the cycle are we? Here are some views:
While everything from investor euphoria to record equity issuance suggests a maturing bull market, Citigroup Inc. strategists led by Robert Buckland highlight one thing that points to it still being early: earnings.
Corporate profits worldwide troughed last November amid pandemic lockdowns, meaning (by this logic) that the market is still in the first year of a recovery cycle when it comes to the bottom line. As the global economy reopens, earnings are expected to surge 36% in 2021, analyst estimates compiled by Citi show.
So whatever doubts bears are casting over the 14-month equity rally, in the eyes of Buckland, the current fundamental underpinning is too strong to ignore. In fact, his team found that since 1976, there have been no years when earnings are up more than 25% and the market is down.
“We would buy into any short-term dip in the markets and cyclical stocks in particular,” Buckland wrote in a note Thursday. “It’s too early to give up on the recovery trade.”
Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company, says the economic cycle—which is tied to market cycles—is also in its early stage.
“Economic cycles in the past, they were much more erratic and much shorter than the past two or three that we’ve had,” meaning that this one could be a shorter one, he said. “The question is how fast does the cycle progress?”