However, it is notable that after such strong monthly winning streaks, near-term stock returns tend to moderate as one would expect. The average three-month forward return after past streaks was 3%, and stocks were up 63% of the time.
As a frame of reference, since the market rebound kicked off in March, there have been two pullbacks of at least 5%. The last setback occurred in June. Recent bull markets have tended to have three or four setbacks during the first nine months. Thus, there is a decent probability that markets see at least one more setback before year end. That said, our focus remains on the primary market trend, which our work suggests remains higher.
The weight of the evidence in our work suggests that we are in a new bull market. Stocks’ five-month winning streak is also consistent with our view. That said, investors should not become complacent. Even in bull markets, there are periodic setbacks, which we view as the admission price to investing in equities. Our work still suggests the primary market trend remains higher, and that is where our focus remains. For investors who are currently below longer-term equity targets, we would advise an average-in approach and becoming more aggressive should we see pullbacks later in the year.
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