Stock Outlook, GDP Forecast, and the Week Ahead, for Week Ending 09/10/2021
How long will the bull run?
How long will the bull market last? That is the question. Forget last week’s numbers or looking ahead for next week. Where do we stand right now in the context of the recovery versus before the crisis?
The S&P 500 had already returned to its pre-Covid trend by the end of the first quarter of this year, and now is a bit higher. Here’s the total data period:
This corresponds well with the NGDP growth versus trend over the same period:
This close correspondence between NGDP and the S&P 500 index shouldn’t surprise readers of this blog, and supports the suggestion that the Fed could level target NGDP, using the S&P 500 as the key indicator.
But, back to the question about whether the bull market can continue; it all depends on the Fed, of course. I recently became more bullish on the S&P 500, but the futures yield curve is still negative and obviously NGDP and the S&P 500 have returned to their pre-crisis trend levels. So, why am I bullish?
Given that the Fed is now targeting average inflation, as opposed to a flat growth rate target, and that the Fed can be slow to respond to above-target growth, if mild, the bull market still has a while to run. However, that might not be a long while.
So, I’m bullish on the S&P 500, but watch out for unexpected tightening shocks, which could be milder than pre-average inflation targeting, but will be shocks nonetheless and could quickly indicate an end to the bull market.
For long-term investors, as I mostly am, it makes sense to buy stocks, and I focus more on individual stocks that can be reasonably expected to outperform the S&P 500. such as Amazon, Microsoft, Tesla, and others.
By the way, here’s real GDP versus the 10 year trend, to give a better idea of where we stand with regard to the pandemic economic recovery:
And here’s a labor force participation rate figure and the unemployment rate:
So, this is another reason to be bullish, as real GDP still has a ways to go regarding the recovery, and the Fed is paying attention to employment data.
Note: Nothing written here or elsewhere by me should be construed as constituting investment advice. Personal factors have to be taken into consideration and the advice of licensed professionals should be sought for personal investment advice.