“The more things change, the more they stay the same.” French writer Jean-Baptiste Alphonse Karr
What a run stocks have been on the past two months! We came into this year with everyone all bulled up after back-to-back 20% years, then stocks tanked in historic fashion after Liberation Day, so those same bullish Strategists and 50 person institutional research shops cut their S&P 500 targets near the April lows, now with stocks back up near new highs they are upping their targets. 😔😔
This great chart from our friends at Yahoo! Finance sums it up.
We never cut our view on the S&P 500, leaving our target at a range of 12-15% for 2025, even when stocks were down 15% for the year on April 8. As we noted that exact day, it was still quite possible for stocks to come back to positive when the year was all said and done, especially with some good news on trade, which is exactly what has happened.
Three times historically we saw stocks down 15% or more for the year and get back to positive and all three of those times gained more than double digits for the year, something we still think is likely this time around. As I’ve said before, this is like a beachball under the water and once it gets momentum it can really get moving.
What a Two-Month Run
It is crazy to think just how bearish everyone was two months ago. I was hearing from people I hadn’t heard from for years and they were all convinced Trump’s tariffs were going to wreck our economy and crash the stock market. We did of course have a near bear market and one of the worst two-day drops ever after Liberation Day, so emotions were no doubt running high. Still, this is why sentiment is so powerful, as the opportunity was there to fade what nearly everyone was saying and be open to a major snap back, which is exactly what has happened.
We went from one of the worst two-month returns ever to one of the best. As we’ve noted time and time again this year, investors need to be aware that the worst and best days tend to happen in clusters and if you sell after some bad days, you’ll likely only miss out on the best days, which is exactly what happened to many investors.
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So just how rare is it to see stocks up more than 20% in two months? Very rare and the good news is it is also very bullish. Only five other times since 1950 have stocks been up more than 20% in such a short period and those times were all great times to be looking for continued strength.
As you can see below, stocks gained after this rare signal 1-, 3-, 6-, and 12-months later every single time. Up a year later by more than 30% on average! Of course, all those other occasions saw much bigger prior selloffs, so we aren’t calling for such a big gain (but we wouldn’t complain!), but this is yet another reason to remain optimistic the second half of 2025. I mean, look one more time at those dates: February 1975, October 1982, December 1998, April 2009, May 2020, and now. Those were times to be open to much better times and this time should join them.
A New Bull Market? Nope
Stocks are officially up more than 20% from the near bear market lows of early April, so are we in a new bull market? If down 20% is a bear market then is up 20% a new bull market? I’d say no, as we never left the bull market is my take. As the quote from Karr above implies, things might have changed some earlier this year, but we are now right back to your regularly scheduled bull market.
Here’s a nice chart we’ve shared before that shows bull markets tend to be choppy and frustrating right around now, which sure played out this time. The good news though is once you can get past this rough part of the bull, better times are coming and they can last many years.
Lastly, we found 17 bear or near bear markets going back to World War II and once stocks were up more than 20% off those lows (like what just happened last week), continued good times usually were right around the corner. You’d think up 20% would mean you’ve missed the rally, but history would say the bull still has plenty of gas left in the tank. Incredibly, stocks were higher a year later 16 out of 17 times, with a very impressive average return of nearly 19%. Oh, and that one time that didn’t work? It was a 100-year pandemic.
Thanks for reading. It isn’t lost on us you can get financial research from so many other places and we are honored you are coming to our team. We won’t always be right, we won’t always be wrong, but we will always be honest. And honestly, things still look pretty darn good.
For our latest views on this rally, inflation, and the slowing economy, be sure to watch our latest Facts vs Feelings below.
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For more content by Ryan Detrick, Chief Market Strategist click here
