Investing.com — Oppenheimer analysts say stocks are expected to moderate next year after a string of above-average returns.
This expected slowdown is consistent with historical trends observed after significant market rallies and reflects the evolving dynamics of bull market cycles.
The past two years have been very strong for the S&P 500 index, with gains exceeding its historical average.
However, the report warns that such sustained progress often leads to periods of declining momentum.
Historically, when an index has posted a cumulative return of 40% or more over two years, its performance in the following year has typically been poor, averaging 3.7%, with only half of those returns being positive.
Oppenheimer said the S&P 500’s current position, approximately 27 months after the bull market that began in October 2022, is approaching the median length of 32 months observed in past cycles since 1932. pointed out.
While this does not imply an immediate end to the bull market, it does suggest that the index may be nearing a stabilization phase rather than continuing strong growth.
Other performance studies have also highlighted this outlook. Breaks to all-time highs, like the one seen in 2024, often lose their upside momentum in the second year.
Mr. Oppenheimer’s analysis shows that returns in the 12 to 24 months after these breakouts average just 1 to 2 percent, significantly lower than the historical average of 9 to 10 percent.
The company’s S&P 500 index forecast for the previous year suggests a balanced outlook with an expected return of 6% and a target level of 6,400, falling between the bullish scenario of 6,700 and the bearish scenario of 6,000.
This reflects a mix of optimism about sustained growth and caution about potential moderation based on long-term performance patterns.
While the risk of a temporary market rally appears limited given solid internal breadth and the absence of any major warning signals, Oppenheimer emphasizes the importance of caution.
They predict a year characterized by correction and consolidation rather than dramatic declines, which is consistent with the drawdown pattern of positive years in the past.
On average, a positive year sees a nine-week peak-to-trough decline of about 11%, in sharp contrast to more severe bear market conditions.
