BMO Capital Markets chief investment strategist Brian Belski joins Morning Brief to break down his chart for the Yahoo Finance Chartbook, which highlights the S&P 500 (^GSPC) max drawdown during the second year of a bull market.
“We said in November of this year that 2024 was the second year of the new cyclical bull market, which began in October of 2022. We were in print on that as well, and the average drawdown since 1949 is 9.4%. Why that is concerning is we’ve only had a 5.5% correction so far in the market. All along the time, this market has become quite frothy with everybody kind of looking to the big cap tech stocks and chasing the market, whether that’s fear of missing out or just momentum,” Belski explains. He adds, “The market’s ripe for a pullback from a sentiment perspective,” expecting a 9.4% correction. He believes this presents a buying opportunity for investors, noting that since 1949, the average drawdown has been 15.5%, signaling that stocks will be higher at the end of the year.
Belski lays out his formula for investing, stating, “Stocks lead earnings, which lead the economy.” With the stock market reaching record highs this year, earnings are expected to be strong, which will, in turn, fuel the economy. He adds, “from a tech perspective, you’re going to start to see a little bit more caution. And that’s OK, especially given the fact how strong they’ve been. You might see a little bit of rotation, but that does not speak to where we’re going to see further earnings strength in the market, especially within financials, parts of healthcare, parts of industrials.”
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