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Bull market to digest gains heading into year 3, strategist explains

LPL Financial Chief Market Strategist Ryan Detrick joins Yahoo Finance Live to discuss the outlook for the 2022 stock market amid the ongoing bull market.

Video Transcript

BRIAN SOZZI: The bull market has officially turned two years old, points out our next guest. The question now is whether the bull market has room left to run even further. Ryan Detrick is the chief market strategist at LPL Financial. Ryan, great to get some time with you. So I guess you're here to tell me that this year, the bull market is about to end, right?

RYAN DETRICK: No, I'm not going to say that, Brian. Thanks. Good morning, guys. So you're right. I mean, yesterday was the two-year anniversary-- or maybe we'll call it birthday, I guess, you know, from those lows when the bull market was born. So that's a big-- I mean, we had a heck of a rally, right, almost up 100% over the past two years. 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. The ones that didn't, though, gained-- I'm going to say only-- only 5.2% for the year.

So the key concept being years one and two of the bull market are really strong. We just saw that. Year three, we don't think the bull market is going to end. We think, you know, 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.

JULIE HYMAN: Well, and Ryan, give people a little perspective here. When it's a bull market, what do investors need to know about a bull market and a pullback in a bull market versus a rally in a bear market? In other words, why is it important what kind of-- where we are in that cycle?

RYAN DETRICK: Yeah, great question there. I mean, you know, clearly, a bull market's going to last a lot longer than most people think, I think is the best way to put it. Let's remember, if we want to go back to this, from 2000 to 2013, right, literally S&P went nowhere for 13 years. That's called a secular bear market. We've been in, in our opinion, a secular bull market ever since. And just last week, you know, are we a bear market rally? Is it not?

Last week was amazing. The S&P had four straight days of 1% gains, as people might remember. When you go back in history, that's only happened four other times, so really small sample size, yes, but again, the returns a year later after, four straight 1% gains, higher 20% every time, 28% on average. So the key concept being, I think what happened last week, very welcome in the lows of the year.

And it's incredible buying pressure that, again, suggests the bull market that's been in play for a while-- we've had a break this year. It's been a rough year, no question about it, one of the worst starts to year ever. We might be looking at some strong seasonals. And don't forget, March and April are two of the stronger months. So seasonals are still, in the short-term, at least, in the bulls' favor here.

BRIAN SOZZI: Hey, Ryan, it was early this morning, chugging my coffee, did a little Google search on stagflation. And Google searches for stagflation are very much on the rise. As an investor, should you be concerned about and how do you invest for a stagflation environment?

RYAN DETRICK: Yeah, I mean, clearly, you should be concerned. So stagflation is simply really high inflation and low economic growth. We'd say probably not. We still think the GDP in the US can grow about 3% this year. Yes, the headline inflation is close to 8%. We're optimistic by the end of this year, will be closer to 4%, so cut in half. Just look at what Nike said, right? I mean, Nike said, hey, you know, Vietnam is getting back online. We're making shoes again. We've seen some light at the end of the tunnel in our view, at least with the supply chain issues.

And believe me, the issues are still there. But we're seeing some improvement. Let's not forget, the stock market's a forward-looking mechanism. The stock market might say, hey, we can live with higher gas prices for six to 12 months because maybe we avoided a recession. But then we can go forward. For the consumer, we're still going to be paying more. So sometimes the economy and the stock market are separate. And we think that could be one of those scenarios. But we're not in the stagflation camp right here, Brian.