over 2 years ago • 1 min
Once a bull market has begun, history suggests that gains in US stocks will continue for at least two years – although the second year’s returns tend to be weaker.
In each of the S&P 500’s 12 bull markets since the Second World War, stocks have ended the second year in the green. The chart above shows the four most recent such bull markets, starting in 1982, 2002, 2009, and 2020. The pattern of a strong first year followed by a messier second year is clear.
There’s no guarantee that history will repeat, of course. And the S&P 500 is already up 9.7% since March 2021, so has plenty of scope to drop back before March 2022 without violating this “second year in the green” trend. But the historic longevity of US bull markets might give pause to those who believe a dramatic sell-off in stocks is imminent.
“The second year of every single bull market since World War II has seen the S&P 500 climb higher,” LPL Financial wrote in a report on Monday. However, “year two following a major market low tends to be more volatile, even if the fundamentals seem much sounder than year one.”
The brokerage reiterated that it prefers stocks to bonds and concluded that, “any weakness would likely be a buying opportunity, as the economic and earnings environment remain exceptionally strong as we head into the second half of 2021.”
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