•The previous best start to a bull market ever was the 2009 bull market, which was up 68.6% after one year. Even after those historic one-year gains, the S&P 500 managed to gain a respectable 15.9% during the second year. It wasn’t an easy ride, however, as there was a 17.1% correction during the second year.
•Pullbacks tend to happen during the second year of a new bull market, with an average year two pullback of 10.2%. Considering the current bull market reflected the best start to a bull market ever, this could open the door for an above-average pullback during year two.
Reiterate Our Bullish View
This bull market is off to an amazing start, but it is important to remember it is still young. While a pickup in volatility would be normal as this stage of a strong bull market, we think suitable investors may want to consider buying the dip. Vaccine distribution, fiscal and monetary stimulus, and a robust economic recovery all have our confidence high.
Covid-19 still presents lingering near-term risk, with variants of the virus adding to the worry. Additional sharp and swift moves higher in interest rates could potentially cause valuations to contract meaningfully, though we see that as unlikely. We continue to expect higher interest rates to fade as a concern for the bull market, but it may take a bit more time to reach that point.
We continue to recommend an overweight-to-equities and underweight-to-fixed-income stance relative to investors’ targets, as appropriate. We reiterate our S&P 500 Index fair value target range of 4,050–4,100 at year-end 2021, based on a price-to-earnings (PE) multiple near 21, and our 2022 earnings forecast of $195.
Ryan Detrick is chief market strategist for LPL Financial.