Investment Updates

With the Standard & Poor’s 500 stock index more than 20% higher than its bear market low on October 12, 2022, The Wall Street Journal, The New York Times, Reuters and other major financial news outlets this past week reported it signaled the beginning of a new bull market. 

The financial press this past week diligently reported that the +20% rule was only a rule of thumb. More important than a rule of thumb, however, are the unusual contradictory signals that a recession was bout to begin at the same time as a jobs boom.  

For the record, after hitting an all-time high on Jan. 3, 2022, the S&P 500 began a long decline. A bear market began on June 23, 2022, when the stock index closed more than 20% lower than its early-January high. Stock prices bottomed October 12, 2022, and are now more than 20% off the bear market low. 

Some other rule of thumb indicators have been predicting a downturn for many months. The consumer confidence survey by the University of Michigan, the business-owner optimism survey by the National Federation of Independent Business, and the U.S. Index of Leading Economic Indicators from The Conference Board have looked dismal for months. However, at the same time, a job-creation boom has been underway. 

Net new jobs created in May were at the same pace as the boom after The Great Recession of 2008 and other previous U.S. expansions. With net new job creation booming, more Americans are going to be earning income and spending it. Consumer sentiment is in the toilet and so is the LEI. But parts of the economy are booming. Perhaps that reflects the turning point signaled by the widely reported 20% rule of thumb.  

Meanwhile, the widespread release of generative artificial intelligence (AI) by Microsoft Bing and Alphabet Google in March 2023 is predicted by Goldman Sachs, a leading Wall Street firm, to boost U.S. economic growth by 1.5 percentage points annually through 2033. That’s about double the economic growth forecasted by the nonpartisan Congressional Budget Office.   

Even if Goldman Sachs is overly optimistic in its baseline case for a 1.5% annual boost, a virtuous cycle of growth seems almost certain. And, if Goldman’s most-likely case is correct, which seems plausible, it could drive stock prices much higher. 

The end of a bear market and the beginning of a new bull cycle is so hard to recognize because it happens when least expected. Amid the din of the modern world, the significant growth potential boost to the U.S. economy from AI is easily missed. Let us know if you want our report on this topic.  

The Standard & Poor’s 500 stock index closed Friday at 4298.86, up +0.11% from Thursday and 0.39% from a week ago. The index is up +92.14% from the March 23, 2020, Covid bear market low, and down -10.38% from its January 3, 2022, all-time high.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock's weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.   ​​​​​​​​

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