The Resilient US Stock Market: A Secular Bull Cycle in Action

Investors have enjoyed substantial gains in the US stock market, capping off a remarkable year. However, the question on many minds is whether this bullish trend will continue. Tim Hayes, Chief Global Investment Strategist at Ned Davis Research, believes that there is compelling evidence to suggest that a secular, long-term bull cycle is still very much alive and thriving. In this article, we will explore the factors supporting this outlook and why the US stock market could continue to offer significant opportunities for investors.

Evidence of a Secular Bull Cycle

The recent strength in US equities serves as a compelling indicator of a potential secular bull cycle. Over the last three months, the stock market has exhibited characteristics reminiscent of a bull market. The Dow Jones Industrial Average, for instance, has achieved record highs in the early months of the year, followed closely by record-breaking performances in the S&P 500. This pattern aligns with historical data on secular bull cycles, as identified by Ned Davis Research.

Since the market bottomed out in 2009 during the global financial crisis, the Dow has consistently displayed higher highs and higher lows, reaching fresh all-time highs each year for an impressive 12-year streak. This consistent upward trajectory mirrors the trends observed in previous secular bull cycles, which spanned the last century.

Supportive Macroeconomic Conditions

Beyond market performance, a range of broader macroeconomic factors bolsters the case for a continuing secular bull market. These factors collectively contribute to a positive economic outlook that supports the likelihood of sustained market gains.

1. Low Unemployment: The labor market in the United States has remained robust, with consistently low unemployment rates. This trend is indicative of a healthy economy and is a significant factor in the broader economic picture.

2. Rising Confidence: Consumer and investor confidence plays a pivotal role in market performance. Increased confidence can drive investment and spending, positively impacting corporate earnings and market valuations.

3. Strong GDP Figures: The Gross Domestic Product (GDP) figures are a key indicator of economic health. Strong GDP growth indicates a thriving economy, which typically correlates with bullish market conditions.

4. Positive Labor Market Data: Recent labor market data provided further evidence of the economy’s resilience. In January, the US added 353,000 nonfarm payrolls, significantly exceeding expectations. Moreover, the unemployment rate remained steady at a favorable 3.7%.

5. Soaring Consumer Sentiment: Consumer sentiment is a crucial gauge of economic health and the willingness of individuals to spend. The University of Michigan reported a surge in consumer sentiment to its highest level in over two years. This notable increase in sentiment over the past two months represents the most substantial two-month gain in more than three decades.

Passing the Duck Test

In essence, the US stock market not only resembles a secular bull cycle but also exhibits characteristics that align with previous periods of sustained growth. It passes the “duck test”: If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

Investors have witnessed consistent market highs and signs of economic strength, offering compelling reasons to believe that this secular bull cycle is far from over. While there are always inherent risks and uncertainties in the market, the current combination of market performance and macroeconomic conditions suggests that the US stock market could continue to provide favorable opportunities for investors.

As always, prudent investment strategies and diversification are essential, but the prevailing evidence points to the potential for ongoing gains in the US stock market. For investors who remain vigilant and informed, this secular bull cycle may offer promising prospects on the horizon.