On August 16, the S&P 500 Index closed at 4480, 100% higher than the low on March 23, 2020. Hitting the 49th new high of the year, with full valuations and decelerating growth, many investors are asking “where do we go from here?” In our view, the answer is probably up.
We heard similar questions in August 2020, when the market had rallied 50% to recoup its losses. Then again when it touched 60% in November. And again in January when it passed 70%, in April when it reached 80%, and in June when it hit 90%. And the factors that have now brought the market to 100% – robust economic growth, improving corporate profitability, supportive policy, low rates, massive liquidity – are still in place today.
Historically, economic expansions have been good to equity markets. Almost 90% of the time, periods of US growth have led to positive 1-year returns. Over entire expansions, markets have regularly returned multi-fold returns. As Exhibit 1 illustrates, today’s 100% gain from the March 23, 2020 bottom has historical precedent to potentially move higher still.
