Although the S&P 500 (^GSPC) has yet to return to the peaks it reached around the turn of the new year, the stock market has recently gained traction to bounce back from mid-March lows. LPL Financial (LPLA) Chief Market Strategist Ryan Detrick provided some context surrounding the current state of the market with regard to bull markets seen in prior decades.
“We looked at 11 bull markets since World War II. Once they got to the third year, three of those 11 actually died. In other words, a 20% correction,” Detrick told Yahoo Finance Live. “The ones that didn't, though, gained — I'm going to say only — only 5.2% for the year.”
And in spite of the numbers which may suggest that an end is near for the current bull run that began during the height of the COVID-19 pandemic, Detrick believes that there may still be room for sustained gains in the remainder of 2022.
“So the key concept [is that] years one and two of the bull market are really strong — we just saw that,” he added. “Year three — we don't think the bull market is going to end. We think gains are likely still. But be a little more tempered, I guess we'll say, over the next 12 months. And sometimes bull markets digest those gains. Perfectly normal and perfectly healthy. Just, investors need to be aware of that.”
Detrick joined Yahoo Finance Live to discuss the outlook for the stock market in 2022 as the bull market enters its third year. Stocks have had a rough first quarter of the calendar year in light of surging inflation, the Russia-Ukraine war, rising interest rates, and persistent supply chain issues, but on a closing basis, the S&P 500 still remains at a level around double its March 2020 trough of just above 2,200.
According to a report published by LPL Research, the current run was the fastest bull market to double ever at just under 18 months. On the second birthday of the market recovery following the Great Recession, the S&P 500 was up just 95% compared to the current bull market’s 102%.
Optimistic despite headwinds
Banks and other institutions are now beginning to sound the alarm of a looming recession which could come before the end of the year. Goldman Sachs (GS) puts the odds of a full-on recession occurring within the next year at 35%. Bank of America (BAC) also reported that investors are beginning to hoard cash on fears of a sustained downturn.
But while Detrick acknowledges that stagflation remains a top concern in the market, he and LPL Financial do not see it on the horizon. He pointed to strong buying pressure as well as the success of companies like Nike (NKE) in navigating supply chain issues. The sportswear company has been able to get its Vietnam production operations back online several months after the announcement of major pandemic-related factory closures last year.
“We still think the GDP in the U.S. can grow about 3% this year,” Detrick said. “Yes, the headline inflation is close to 8%. We're optimistic [that] by the end of this year, it will be closer to 4%, so cut in half.”
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV