Research Firm: Three Bullish Catalysts Will Propel the U.S. Stock Bull Market into Its Third Year

According to data from Ned Davis Research, the recent bull market in the stock market may continue for a long time.

The company's strategist stated that the two-year bull market may continue for another 12 months. In a report this week, NDR stated that as long as three positive catalysts continue to boost the market, there is no reason for the stock market not to rise.

The company mentioned that in the 13 bull markets lasting at least two years since 1949, U.S. stocks have continued to rise in the third year, unless the economy enters a downturn or encounters a black swan event, such as the European sovereign debt crisis or the 2011 U.S. credit rating downgrade.

One example is when the stock market ended its bull market after the Federal Reserve reversed its rate cut decision, causing investors to panic.

The strategist wrote, "Bull markets do not die of old age. The table below emphasizes our view that, absent a Fed policy mistake, an economic hard landing, or an external shock, the path of least resistance is for the bull market to continue."

U.S. stock bull markets lasting three years since 1949

NDR pointed out that in all bull markets lasting at least three years since 1949, the median increase in U.S. stocks in the third year was 13.1%.

Since the S&P 500 entered a bull market phase in October 2022, the index has risen by 60%. The company stated that these gains were mainly driven by the following three positive catalysts, indicating that as long as positive factors continue to exist, the stock market can continue to perform well.

1. Anti-inflation trend: The company wrote that cooling inflation has "defined" the current bull market. While progress in lowering inflation seemed to stall in the first half of this year, it has now continued to trend closer to the Fed's 2% inflation target, reaching 2.5% in August.

2. Avoiding economic recession: The U.S. economy needs a soft landing for the stock market to continue to perform well. The strategist stated that the risk of an economic recession "looks low in the short term." The U.S. GDP grew strongly by 3% in the last quarter.

3. Strong corporate earnings: Steady growth in corporate profits is needed for U.S. stocks to continue their upward trend. According to FactSet data, earnings growth for S&P 500 companies in the third quarter is estimated to be around 4.6%. The analysis firm stated in a report that if this proves to be true, it would mark the fifth consecutive quarter of earnings growth.

NDR's strategist added, "We remain positive on U.S. stocks, both from an absolute perspective and relative to bonds and cash."