The Bull Market Is Back. What Now?

It’s too soon to judge whether this is another bear market rally, albeit a strong one, or whether the October market low represented the start of a true new bull market, Sonders said. The market will continue to be at the mercy of the Federal Reserve’s reaction to incoming inflation and labor market data, she said, although the “pain trade” is likely higher from here.

Further broadening would be a welcome sign that perhaps the worst is over, she added.

Ryan Detrick, chief market strategist at Carson Group, said via email Friday that the market rally has more room to run.

“Just because stocks are up 20% from the lows doesn’t mean the rally can’t continue. We found 13 other new bull markets since 1950 and a year later the S&P 500 was up 12 times and nearly 18% on average,” Detrick told ThinkAdvisor.

“The most well telegraphed and expected recession in history counties to be pushed back. We were in the lonely camp [of those thinking] there wouldn’t be a recession this year, and the recent solid employment data, strong consumer and improving housing data further confirms a recession in ’23 isn’t likely,” he said.

Raymond James Chief Investment Officer Larry Adam cited via email Friday several reasons he thinks the equity rally will continue, “albeit at a slower pace then what we have seen recently.” These include healthy macro headwinds, such as decelerating inflation, the end of the Fed’s tightening cycle and expectations of a very mild recession.

“The equity market has tended to rally double-digits in the 12 months after the conclusion of the Fed’s tightening cycle. Our expectation that long term interest rates will fall … from current levels will increase the attractiveness of equities,” Adam said.

He also cited “micro momentum,” with earnings expected to continue to exceed expectations and 2024 earnings likely to “grind higher” as the economy recovers from a likely mild recession.

Like Brown and Sonders, Adam also noted broadening participation. “Much of the bounce back has been on the back of tech’s strong performance, but we expect to see a broadening of additive performance to include sectors such as energy, financials and health care, among others,” he said.

Despite the strong rally, investors remain cautious and given the record amount of cash on the sidelines, any increase in sentiment would be a positive to flows, he said, citing “positioning” as another potential driving force.

History also shows that a new bull market is a positive for the equity market, Adam added.

Jim Williams, Creative Planning chief investment officer, told ThinkAdvisor via email late Friday: “We are cautiously optimistic that the Fed may successfully navigate a soft landing. There is a great deal of uncertainty exactly how things may unfold, but I believe things are trending in the right direction.”