The Week in Markets - A New Bull Market

From its low in October last year, the S&P 500 index is up over 20%, meaning it meets the technical definition of a bull market. Its largest company, Apple, is less than 1% from making a new all-time high. There were 26 bull markets since 1929, as defined as a 20% or more rally that was preceded by a 20% or more decline. 19 of the 26 had returns of over 30%. 16 of them had returns of over 50%. But this bull market goes against economic indicators that point to a slow-down or recession, and its breadth is unprecedentedly narrow, with less than one in four S&P companies outperforming the index. The forward price to sales ratio of the S&P Information Technology index at 6.5x is at a near-record high, compared to its long term average of 3.5x. And in the Q2 results season that starts next week, analysts expect a 9% y/y decline in earnings, the biggest decline since Q2 2020. But after that, analysts look for better earnings each quarter. As we move into H2 2023, the market will focus more on next year than this year. Analysts look for 2024 earnings to rise 11% y/y. Last week, the energy, financials and transportation indices all broke above downtrends in place since November 2021 and January 2022. All three are cyclical sectors; sensitive to the health of the economy.

This episode is presented by Mark Matthews, Head Research Asia at Julius Baer.