Correction? Let’s Hope So!
The robust start of U.S. stocks in 2024 has sparked comparisons to historical market cycles, raising alarms for some over the possibility of overheating. The S&P 500’s frequent record highs, Nvidia’s dramatic increase, and the resurgence of Bitcoin are all making some market-watchers grumble that the pace is unsustainable.
However, mixed performance among the major tech stocks (which we noted last week in our descriptions of problems at Alphabet, Apple, and Tesla), and a cautious approach to IPOs, are two immediately apparent technical factors suggesting that the market’s strength is not merely speculative. The broader rally, as shown by new all-time highs in the equal-weighted S&P 500, and a sober reception for new listings, alongside what are actually rational valuations even for the mega-cap tech firms, argue against fears that a bubble is about to burst.
After chopping round for over two years, the S&P 500 equal-weighted index is only just now making a new high.
Even (maybe especially) in the most uproarious bull market, we habitually remind investors that a 5% or 10% correction can occur at any time. This advice applies particularly as a bull market ages; historically, on average, after 15 months of a bull, it has provided some two-thirds of its ultimate gains. That means there are usually generous gains still ahead; but the remaining months of the bull will not be linear, so expect increased volatility. We expect investors’ skillfulness and patience to be tested in the coming months. We also expect that many of the best performing stocks and sectors that have been outpacing the broader market will probably experience larger pullbacks.
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