For the past decade, the list of the largest publicly traded U.S. companies has consistently been dominated by many of the same technology firms. These
Can the Bull Market Continue to Run?
Published Date : October 29, 2024
Following the post-COVID stimulus hangover in 2022, the bull market has continued to run. One of the key factors was the Federal Reserve’s decision to reduce interest rates in September, delivered nearly a year after they teased the market that the change was coming. Additional drivers of the market run include a massive capital expenditure cycle focused on building out artificial intelligence (AI) capabilities, energy capacity additions to support both AI and electric vehicles (EVs), corporations reshoring manufacturing to the USA and the continuation of fiscal spending. We are now two years into a market upswing and the obvious question is, how long can this equity bull market last? In our view, the key determinants will continue to be interest rates, economic activity and corporate earnings.
Although we don’t know what the direction the Fed will take through year end, the expectation is that the recent interest rate tightening cycle is indeed over. Should we continue to see stability in interest rates, the lower interest expense burden at both the corporate and consumer level should function as a tailwind helping support a narrative that we are back in an economic “Goldilocks” environment. Whereas the recent 50 basis point rate cut seemed dramatic, the Fed has again highlighted that they are likely to gradually lower rates in an attempt to position them to be “just right”—low enough to be accommodative but not too high to dampen economic growth and employment.
So far in this cycle, the main beneficiary of multiple expansion has been the mega-cap companies in the S&P 500 (those valued in the trillions of dollars) as the AI capital expenditure cycle has driven strong revenue and earnings growth. The large AI investments are incentivized by the expectation that there will be emerging and persistent efficiencies derived from a combination of accelerated growth and a reduction in future expenses (hours saved and labor cost reductions). Although some of the mega-cap stocks look relatively expensive, valuation alone tends not to cause a change in trend as it reflects the expectations of continued growth in the future rather than looking backward. Should the economy continue to show support, the market participation could also continue to broaden, helping the small and mid-cap equity sectors as well.
The good news is that bull markets last longer than bear markets and they can run for extended periods if they are well fed. According to J.P. Morgan, “the median bull market lasts 46 months (about three times longer than the average bear market).”1 If this pattern continues, we are only in the middle innings of this market run. One element likely to feed this bull is the high level of cash held outside the stock market. At the end of August, there was “more than $6 trillion of cash sitting on the sidelines”2 given the appeal of an attractive risk-free interest rate along with many likely holding extra cash ahead of important elections. Typically, once certainty evolves post elections, some of those cash balances will transition back into the capital markets.
Overall, market volatility has also been relatively stable due to the Fed being more transparent than in prior cycles given they tend to telegraph their intentions well ahead of their actions to smooth the rate transitions. Although volatility will ebb and flow, the catalysts which have driven the rally are still in place hence we hope to see the bull market follow its historic path, rewarding those invested in diversified portfolios.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
Other Posts By This Author
- – When Macro Overwhelms the Micro
- – Weight a Minute: Will GenAI Transform Your Figure?
- – Welcome Back to an Economic Cycle
- – Are We in the Midst of “The Great Reset”?
Related Posts
Recent Posts
