Are stocks back in the bull market?

The stock market has seen significant growth in recent months, with the S&P 500 index up more than 8% and the Nasdaq index up about 16% since the beginning of the year. However, there are still concerns looming about the global economy slipping into recession soon, leaving global stock markets in a state of confusion.

Stock markets begin to recover before the economy

The market often begins its recovery before the economy. In fact, in all recessions except for one over the past fifty years, the S&P 500 index started to recover before the economy hit its lowest point.

For example, during the financial crisis, the S&P 500 index hit its lowest levels in March 2009. But it took until June of that year for the recession to officially end. During those few months in between, the S&P 500 index rose by nearly 40%. Stock prices may still experience further declines at times, but the market will ultimately recover — likely before the economy stabilizes.

Stocks are in a bull market

Since the beginning of 2023, stock markets have started to rise, with the S&P 500 index up by 5.5% in the first quarter of the year and on track to record an increase of about 3% in the second quarter. Two consecutive quarters of a strong indication of the beginning of a new bull market. Therefore, stock markets may see further gains during 2023 even if economic indicators and data are disappointing.

Overall economic and market conditions

One of the most important issues still facing stock markets is the strong inflationary pressures, which are pushing central banks to continue raising interest rates, even if this has negative implications for the economy and corporate performance in the coming period. Therefore, markets are closely monitoring any developments regarding the intentions of central banks, which could directly affect stock movements.

Regarding corporate earnings in the first quarter of 2023, they were much better than some had thought, but compared to 2022, companies are facing many pressures, as spending on goods has slowed significantly and companies are now spending more cautiously due to the strong inflationary pressures. In addition, consumer and commercial lending activity has slowed, likely due to rising interest rates. New corporate bond issuances have also declined. This could be a stimulus for slower economic activity and weak earnings as a result.

On the other hand, talks about raising the US debt ceiling and political tensions between Biden and the Republican Party are still causing uncertainty and have led to significant declines in stock market indicators in the past.