Believing in the Bull

We’re a year and a half into what Wall Street calls a bull market – when stocks consistently rise for years on end.

But if we’re being honest, this bull hasn’t really checked all the boxes yet.

Sure, stock prices are 50% higher than they were in October 2022. Yet the world still feels volatile and unsettled, with noticeable inflation and sky-high interest rates on mortgages and car loans.

It’s time to believe in the bull because things don’t feel quite right.

Trusting your gut

Any wise investor will tell you that bull markets are powered by strong economies and rising profits.

But many miss a crucial first step. Bull markets are born from a shift in investor psychology that often occurs way before the hard data improves.

History tells us as much. Since 1950, bull markets have started an average of three months before a recession has ended. And if you waited for the economy to turn before investing, you missed out on an average of 22% in S&P 500 gains.

The stock market has shown us time and time again that you can’t trust your gut. The best times to buy have been when the environment has felt tenuous.

Now, history doesn’t always repeat, and “unprecedented times” has been the phrase of the decade.

Still, we may find ourselves in a similar situation here.

Things are far from perfect. Housing and manufacturing activity has been frozen for two years, hobbled by higher rates and Americans’ selective spending preferences. Or like people have said to me – you can’t have a healthy economy with 8% mortgage rates.

But conditions are clearly getting better, and that counts for something. Housing and manufacturing have started to thaw, even though formal rate cuts haven’t happened yet. Mortgage rates have come down significantly since the end of last year, breathing life into the housing market and consumer confidence. Last week, the Conference Board’s Leading Economic Index (LEI) – a measure of early economic signals – improved for the first time in two years. Even the Fed agrees, evidenced by higher growth projections for 2024 and Jay Powell’s optimistic comments earlier this month.

If housing and manufacturing are on the cusp of a rebound, the economy’s strong phase may still be ahead of us. And when the economy is roaring, the stock market often follows suit – even if you’re feeling nervous about what’s next.

The bottom line

Investing rarely feels comfortable when it comes to risking your hard-earned money, especially when the scars of COVID are still fresh.

But if this is a bull similar to others in recent history, the risk of staying out of the market could be more dangerous than what the future holds. There’s plenty to be hopeful about, and that may be all stocks need to keep rising.

If you’re still feeling unsure, know that investing isn’t just a matter of blindly buying or selling.

These days, there are a bunch of tools available to build a portfolio suited for your own wants, needs and fears.

CTA