On the Stock Market Get Ready to Welcome a New Bull Market This is a blog post that I published back on October 7 of last year. Where I predicted that a new bull market would begin soon. It’s aged well, so I wanted to share it with you. I think it gives us some pretty good perspective on what to expect going forward. A week after I published this, the S&P 500 hit a low point of around 3,500 on October 13. Since then, it has risen all the way to 4,205 as of yesterday. What defines a new bull market? While there’s no clear-cut definition of what constitutes a new bull market, two common metrics are as follows:
- A rise of 20% in the stock market — The S&P 500 is now 20% higher than its low from October.
- A recovery above the -20% decline that started the bear market in the first place — The S&P 500 dropped by -20% (to a level of 3,854) in June of last year and is now at 4,205.
What does this mean? It means I’m pretty good at interpreting what’s going on in the stock market. Nothing more. Nothing less. My next prediction could fall flat on its face. And although I don’t think it’s likely, we could be in for another bear market next week. The case for financial planning Because nobody can accurately predict the future all the time, financial planning is way more important than investment management. So when a financial advisor tries to charge you a percentage fee on the value of your account… And says something to the effect of “they do better when you do better” or “they are incentivized to make your account grow,” don’t buy it. The stock market is going to do what it’s going to do. All you need is a good financial plan to take advantage of long-term compounding growth, while protecting yourself from inevitable downturns. There’s no need to pay an investment manager. And this is why I am a financial planner. Let’s review the details The basis for my prediction was simple. Back in October, expectations had gotten too low. Which meant the likelihood of reality coming in better than expected was pretty high. And when things turn out better than expected, the stock market usually goes up. Here are some examples of just how pessimistic things had gotten:
- Investor sentiment had fallen to its lowest point since the 2008 Financial Crisis
- Q3 2022 earnings were expected to be the worst since Q3 of 2020 (the depths of COVID shutdowns)
- The market was still expecting massive Fed rate hikes (which tend to slow the economy and devalue the stock market)
- Inflation expectations were still sky high
As I suspected, future reality has continued to turn out better than expected. And the stock market has staged a fierce rally that looks sustainable. I would argue expectations are still too low. Which means more of the same in the future. Which makes sense, because a bull market is often said to “climb a wall of worry.” As Sir John Templeton once said, “bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” I still think we are in the early stages of a new bull market. Let’s all enjoy the ride up! I could be wrong As I said, nobody can accurately predict the future all the time. Please — if you don’t already — make sure you create a solid financial plan. One that will protect you against losing a lot of money, while allowing you to make a lot of money over time.