The S&P 500 closed at a record high on Friday, surpassing the old high mark it set in early 2022. The gains show investors have overcome fears of rising interest rates and panic about a recession that have ruled stock trading for much of the time. The last two years.
Instead, they are now betting that lower interest rates will help expand corporate profits, while the economy remains on relatively solid footing.
Although the S&P 500 has struggled to reach a record high — after hitting it for weeks before finally crossing above it with a jump on Friday — the record high should also put an end to the debate on Wall Street about whether the period That preceded the recent rise or not. Stocks reflected a lasting shift in sentiment, or if it was just a rebound that would fade as fear about the outlook for the economy returned.
To the average person, it doesn’t matter what rating analysts give the stock market when it’s trending higher, but with the new high, they’ll hear a lot about a “bull market.”
Here’s what to know about the market now.
What makes this a bull market?
“Bull market” is not an official designation. There is no governing body that defines what it is, or decides when it began (as is the case in the case of a recession). But on Wall Street, there are two common ways to apply this classification.
Someone says a bull market is confirmed when a major index like the S&P 500 rises 20 percent above a recent low. By that standard, the June bull market was confirmed, when the S&P 500 closed 20 percent above its October 2022 low.
But some people were quick to dismiss this standard as too easy for the market to meet. They use the second definition of a bull market, where stocks must rise beyond their old highs.
As of Friday, By both measures, the S&P 500 is in the middle of a bull market.
When did the bull market start?
The current bull market began in October 2022, when the S&P 500 hit a recent low. Since then, the index has risen by about 35 percent.
How long do bull markets last?
A bull market can last for more than a decade or a few months. Stocks are in a bull market most of the time.
The previous bull market lasted less than two years, starting in March 2020 and ending in January 2022. Before that, stocks were in a bull market that lasted nearly a decade, from March 2009 amid the Great Recession to February 2020, as they did with COVID-19. It has emerged as a global threat.
When was the last S&P 500 record?
The index hit a record high on January 3, 2022, the first day of trading that year. Low interest rates and rising consumer spending, driven by stimulus checks and the rollout of coronavirus vaccines, helped boost them.
“There was euphoria surrounding what we were tasting as post-pandemic life,” said John Lynch, chief investment officer at Comerica Wealth Management.
But just days later, the Fed released details of a meeting that indicated the central bank was concerned about inflation and would begin raising interest rates to slow the economy. The index ended that week down about 2.5 percent, at the beginning of a bumpy decline that lasted until October, when stocks were 27 percent below their peak in January.
The Federal Reserve began its campaign to increase interest rates in March 2022, raising the cost of borrowing for businesses and consumers. Worried about a recession, investors dumped stocks as the Federal Reserve gradually raised interest rates from nearly zero to a range of 5.25 to 5.5 percent, the highest level in 22 years.
Then data began to point toward a slowdown in the labor market, and inflation began to moderate. Investors began betting that the Fed was almost done with its campaign, and once the central bank signaled it was considering cutting interest rates in 2024, the decline was reversed and stocks rose past that old high.
What does a bull market mean for ordinary investors?
Maybe nothing. The fact that stocks are rising is certainly good news for those with a 401(k) retirement plan, and even better news for people with large investments in the stock market (often high-income Americans).
But Mark Wilson, a financial advisor at MILE Wealth Management in Irvine, California, said the record shouldn’t change the behavior of most investors. Wilson advises his clients not to make decisions based on daily news in the financial markets. He said. Often times, news that the stock market is rising raises fears that it is bound to fall.
“People imagine the stock market like a heart monitor that goes up and down, so some people get nervous,” Wilson said. He added that although the stock market has hiccups and does not break records every day, it is generally trending higher over time.
For people who invest for the long term, what matters is the value of their assets when they need cash, Wilson said. Additionally, it is important to realize that the S&P 500 is just one index; A pension or retirement plan will invest money across asset classes that may not all be available at the same time.
What does this mean for the economy?
High stock prices can encourage companies to expand, and for the 60% of Americans who own stocks, a bull market means they may feel a little richer because their long-term savings are worth more. This may make them feel better about their finances, but what is likely to make them spend more is the size of their paychecks, according to Robert Watson, an economist at Mercer Asset Management.
“The most important thing for middle-income people is whether they have a job and whether their wages will go up,” he said.
What will end the bull market?
A bull market ends when stocks fall 20% from their high, a period known as a bear market.
The last time the S&P 500 entered a bear market was in 2022, as investors retreated in the face of stubborn inflation and rising interest rates.
But even if stocks don’t fall that much, they could pull back some.
Inflation is moderate, but some analysts warn it is too early to declare victory. Prices rose 3.4% year-on-year in December, down from a peak of 9.1% recorded in 2022, but still above the Federal Reserve’s 2% target.
If inflation trends unexpectedly go in the wrong direction, the Fed may not cut interest rates as quickly as investors hope.
“The single most important thing that could reverse this rise is if inflation does not fall,” Watson said.