Quick Bites | New bull market or another bear market rally?

One of the big questions facing investors right now: Are we in the midst of yet another bear market rally which is doomed to fail as corporate earnings fade under the pressure of rising rates, or did a new bull market begin in mid-October 2022?

Source: JP Morgan

Opinions are divided. In fact, according to the Bank of America Global Fund Manager Survey, fund managers are not convinced that we are in a new bull market. Some 66% of global fund managers believe that we are in a bear market rally, driven by easier financial conditions such as lower bond yields, lower volatility, and a lower US dollar. Only 23% think this is the start of a genuine new bull market.

The chart above examines the 12 month returns for the US S&P 500 index following major bear markets from the last 25 years and highlights that strong returns 12 months after the market bottom has been seen, divided into small caps (the green bars) and large caps (the grey bars). Clearly small caps outperform during recoveries.

What will the returns be for 2023? For the record, this writer believes that the market bottom of October 2022 will hold, and that despite profit taking and volatility over coming months, we are in a genuine bull market – albeit one which will yet experience many twists and turns.

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